Samuel Smith is the broker and owner of Smith Real Estate, a real estate sales organization in Mount Vernon, Washington. Normally, Smith hires a local accounting firm on an annual basis to audit the organization’s financial records. With the business in a state of rapid growth, Smith has been preoccupied and has forgone the audit for the last three years. Instead, his wife, Athena Smith, has exercised her somewhat rusty college accounting skills to pull the data needed for tax professionals to prepare the tax returns. In prior years, Ms. Smith observed no issues with the records.

During the current year’s annual reconciliation of accounts, Athena discovered discrepancies between the commission receipts from real estate closing records and the actual bank deposits. Athena also noted that despite assurances from her husband that business has been good, the checking account balance has continued to decline and the company’s bank account fell into the red (a negative number) in December, and the company bounced a few checks during the month. Athena also noted some unusual expenditures (seemingly non-business-related expenses) in the company accounts that she was not aware of; such expenditures were not observed in prior years.

Athena Smith promptly but quietly filed a report with the local prosecutor, a long-time family friend, and requested a thorough investigation. As a result, the prosecutor’s office has contracted a regional accounting firm to perform the financial examination.

The accounting firm’s managing partner has stressed the following points:

• The prosecutor’s office has assigned special agents (SA) from the Task Force on White Collar Crime to conduct an investigation. Athena Smith will pay all fees for this investigation. If criminal charges are found to be supported, the prosecutor’s office will take the case forward.
• It is extremely difficult to schedule time with the Smith’s:

• Samuel Smith is politically well connected in the community and difficult to contact due to the nature of his business. Also, given his wife’s concerns, he will not be contacted directly.
• Athena Smith is a practicing surgeon at a local hospital.
• The couple has four children.

• Smith Real Estate is a “small business” and does not employ staff accountants.
• Last month a fire at the real estate office destroyed the financial records, both paper and electronic.

Assignment:

Develop a preliminary examination plan to investigate the issues described in the scenario:

• Consider the various issues outlined above and think critically about how you might approach the examination.
• Think about the fraud triangle – can you identify any of the elements in the above scenario?
• Brainstorm the case issues identified and start to generate a series of questions that you, as the investigator, must answer to proceed with the investigation and “solve the case.”
• Rank order the issues and related questions.
• Develop a data request that describes the evidentiary material required to proceed with the investigation. The data request lists physical and/or electronic evidence that might be helpful. Recall that as a forensic accountant and fraud examiner that “numbers” are your bailiwick. As such, evidence (data) could be physical or virtual, and examples might include financial numbers, financial documents, statements, invoices, canceled checks, dates, times, contracts, databases, non-financial metrics, etc. Because of the fire at Smith’s Real Estate, where would you find these records? (Note: The prosecutor has subpoena power to solicit evidence from 3rd party sources.)
• What evidence is required to examine the issue or answer the question?
• Submission to instructor: In a table, prioritize your list of issues/questions and associated data request. The submission should include an opening paragraph discussing the fraud triangle, and any elements that stood out in the scenario; the rest of the points should be in table format: column 1 – issue/question (there may be multiple questions related to each issue), column 2 – data request, column 3 – time period, column 4 – the purpose of data request. Each row of the table should be a separate issue/question. See the example below for ideas on getting started:

Question/Issue	Data Request	Time Period	Purpose
Missing Deposits
Who is involved in deposit activities?	Organizational chart	Time of the missing deposits	To develop a list of potential beneficiaries