Southern Supplies, Inc. - Sales Fraud Case

An allegation recently surfaced against Southern Supplies, Inc. ("The Company"), a

supplier of office supplies and equipment, which claimed that management has

been pushing their salesmen to close deals by quarter end with sales contracts

allowing for weak return policies. Your colleagues at Sketch LLP ("Sketch"), a

boutique forensic accounting firm located in Washington, D.C., have already

started reviewing the allegation to see if it has any merit.

Thus far, the team has begun collecting hard drives, reviewing emails,

requesting documentation from the client, and analyzing financials. In doing so,

they have identified a transaction which could substantiate the allegation. The

transaction occurred near the close of the 3rd quarter, with WWD Sales - one of

the company's largest retail purchasers. To date, the team has found the

following support related to the sale to WWD:

1. Emails (Below) - After utilizing Sketch's data keyword search tool, the

team discovered a couple "Hot Doc" emails. The emails identified include

1) an email between the sales manager and salesman, and 2) an email

thread between the controller and the CFO.

From: Smith, Jack () [Divisional Sales Manager]

Sent: Wednesday, September 19, 2012 4:23 PM

To: Schwartz, Terry [Salesman]

Cc: Hunter, John [Chief Financial Officer]

Subject: Sales for 3rd Quarter Close

Hey Terry -

As you are aware, 3rd quarter closes next week and our sales figures are well below where we thought they would be. I think we should offer WWD Retailers a 30% discount if they buy our remaining inventory by Friday. That nets to $1,200,000. Additionally, let's include a lax return policy so they can return it if they don't need it!

That way, we can lock in the sales for 3rd quarter financials. See if that is something they are interested in and get back to me.

I can't tell you how important it is that we make this happen, not only for Southern Supplies but for all of us.

I'm expecting good news!

I have copied John on this email so he is in the loop.

JS

Jack Smith

Division Sales Manager

| www.SouthernSupplies.com

Please consider the environment before printing

From: Hunter, John [Chief Financial Officer]

Sent: Friday, September 28, 2012 9:43 AM

To: Hinton, Lisa [Controller]

Cc:

Subject: RE: Entry for WWD Sales

Lisa -

Please proceed with putting it in the books. Are we still on for tomorrow night? ;)

Regards,

John Hunter

Chief Financial Officer

| www.SouthernSupplies.com

Please consider the environment before printing

From: Hinton, Lisa [Controller]

Sent: Thursday, September 27, 2012 7:28 PM

To: Hunter, John [Chief Financial Officer]

Cc:

Subject: Entry for WWD Sales

John,

My team just entered a journal entry for WWD that they thought was odd so they alerted me. It

appears that Terry made a sale with WWD for $1.2million. Is this legit?

Let me know. Thanks!!!

Lisa Hinton

Controller

| www.SouthernSupplies.com

Please consider the environment before printing

2. Journal Entry Screenshot (Below) - The team received access to the

accounting system and located the journal entry for the WWD transaction.

3. Sales Invoice (Below) - The team found a copy of the invoice for the

sale in question with a sales date of 9/27/12.

Assignment Questions

As the team members of Sketch LLP you were requested to analyze the support

found and answer the following requests:

1.Provide an interview outline (including proper warnings and common

interview statements discussed in CH 4) for a meeting with John Hunter,

Chief Financial Officer of the company and include 10 questions you will

want to ask Mr. Hunter.

2. What anomalies were detected during your review of the transaction

documents?

3. Why would the actions taken by the Southern Supplies sales team be considered

fraud? Are there any circumstances under which similar actions may not

be considered fraud?

4. Provide three suggestions on how the company can prevent this issue from

reoccurring.

5. Name three benefits to effective interviewing and interrogation skills?