Sample Forensic Accounting Cases

Case 1: Shy doc Gave Good Face

Summary of the facts for the Case

The case of Dr. Lee portrays the fact that irrespective of how much an employee in earning, he may be tempted to engage in fraudulent deals. This can be attributed to poor internal control systems, failure to carry out regular internal audits and personal interests that can be exhibited by the employees. The case of Dr. Lee also explains that it does not matter how much a person is earning in his job but chances of malpractices to satisfy personal interests are likely to occur. Every organisation that is handling finances needs to put up laws and policies to guard against fraud. In addition, the organisation should ensure that the staff entrusted in the delivery of services is not the same person who collects the returns as this may sometimes lead to temptations.

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Employees should also be given time off to attend to their recreational needs as a way of creating motivation towards work. This helps them to appreciate what they do; to prevent creating a mistaken misconception that work is enslaving. Dr. Lee worked hard in his work to ensure that he delivered quality services to his clients. He also upheld the professional code of ethics by ensuring that he kept up-to-date medical records of all his patients. However, his desire for riches could not allow him to discharge his duties with integrity and thus he resulted to fraud.

Financial Process Used

The financial procedures used by the clinic had numerous loopholes since several staff members could collect payments with the intention of later baking in the organisation’s account or submitting the payment to the cashier. The cashier could not establish how much money had been collected by the various staff since no records were kept in some situations, for instance Rita’s case. Organisations and institutions providing goods and services should ensure that their records are well maintained and are updated regularly to curb malpractices. The larger the size of the organisation, the more thorough and elaborate should be its internal control system. The system that operates within an organisation should be operated in such a way that employees are made accountable for their own actions. This helps to maintain order and accountability; some facts, which impact positively on the returns that an organisation generates. Many resources are invested in every business and its ability to realize returns lies in its capacity to deal with, track the expenditure and movement of resources within the organisation.

Description of the Fraudulent Activity

The case of fraud involving Dr. Lee raised suspicion when a patient (Rita Givens) sought rhinoplasty services from the clinic. The doctor had earlier advised the patient that she could take the left route from the elevator, which led to Dr. Lee’s reception area, rather than the right route. The right route headed to the main reception area, which was manned by other staff within the premises (the secretary and receptionist). Dr. Lee had not disclosed to the clinic secretary and receptionist of his appointment with Rita. They also did not know that the doctor actually performed a surgery on the patient to correct her defective septum and proboscis. The fee that was charged for the service was paid using a personal check to the doctor but it was not recorded on the patient’s file.

The fraud was discovered when Rita decided to review her insurance policy, which had earlier excluded the inclusion of rhinoplasty in the policy. This is on her discovery that the insurance could consider her case under certain circumstances and therefore she made a claim. Realizing that she had not received her billing statement, she decided to call the clinic to claim the statement so that she could attach it to her claim. She then called the cashier who despite locating the file was not able to establish the charges for the services rendered. After internal inquiry within the clinic, it was discovered that the Dr. Lee had deposited the check in his personal account. This triggered investigations by a hired private investigator, Doug Leclaire; after the doctor admitted of his wrongdoing. The private investigator interrogated the doctor who admitted responsibility for his action and other fraudulent activities he had engaged in previously. The incident occurred because of weak internal controls, which tempted employees to steal money despite having high salaries and bonuses.

Actions Taken and Internal Controls Recommended

The action taken by the clinic to prevent future recurrence of such incidences of fraud was to change the entire system of dealing with payments, leading to the establishment of a central billing section, informing the patients of the payment procedures and separation of duties by assigning several employees to handle various transactions involved during payment. It was recommended that routine internal checks to prevent embezzlement of funds as had taken place for the last four years. The new policies, which were recommended, were immediately implemented to address the payment processes. This was geared towards eliminating the chances of such occurrences in future.

Case 2: A wolf in Sheep’s Clothing

Summary of the Facts for the Case

This case explains about Melissa Robinson who was working as an executive secretary in a charitable organisation in Nashville. Robinson was committed in her work according to her colleagues and club members. She was perceived to be a godsend person who had devoted her time and effort towards the fulfillment of her job’s requirements. However, she had a personal weakness in that she was a thief and could defraud the organization a lot of money obtained from payments made. Despite the suspicion raised, her board of directors kept defending her since they could not imagine her stealing.

During a period of five years, the organization had lost about $60,000. The organization, like any other charitable institution, could organize fund raisings and most of the money was received in cash. The organisation engaged the services of an internal fraud examiner, David Mensel to investigate the executive secretary. The internal audit revealed that about $60,800 could have been lost during this period. This was in consideration that the amount of money that passed through the executive secretary’s office had not been documented. The auditors also discovered a decline in collection from events that the organization had taken part in for several years.

Financial Process Used

In Nashville charitable organisation, a higher percentage of the payments were made in cash and only a small percentage was checked. In addition, any financial transaction involved two signatories to obtain money from the bank but Robinson was able to forge the other signature and proceed with the transactions in her favor. The money that was collected on a particular activity would be taken to the secretary’s desk without any recording. This displayed lack of accountability and provided loopholes for fraudulent deals. The fraud was also manifested due to the failure of the board of directors in to have regular audits; an audit was being done annually. However, these audits failed to proceed to completion during the tenure that Robinson was the secretary due to the negligence and failure by the board of directors to take keen interest in the process.



Description of the Fraudulent Activity

In his investigation, fraud examiner, David Mensel realized that Robinson was one of the most hardworking and dedicated employees and could offer a lot of time to facilitate operations in the organization. However, on assuming power as the executive secretary, Robinson started stealing from the organization’s bank accounts by taking small amounts of money at a time. Although two signatures were required to complete a transaction, she would forge the second signature to defraud the organization. She would also write a check paying herself without involving the other signatory. Robinson also refused to embrace the computerized system that had been proposed by the organisation and continued to use her manual checking process.

The discovery of the fraudulent deals started when a new set of officials were elected, who include a treasurer. The treasurer sought to scrutinize the books; a plea that was rejected by Robinson the same way she had done earlier. It took the intervention of the chapter President who went to the secretary’s house and demanded the books. It is from the books that the board of directors discovered that the records were not in order. Despite the embezzlement, it was discovered that Robinson was not using her money to improve her or her family and possibly this could have delayed the discovery.

Actions Taken and Internal Controls Recommended

On discovery, Robinson was later indicted and found guilty and an order for restitution was issued to pay the insurance company and the organisation. This case recommends that audit functions are a requirement in every organisation that is handling finances not unless the organization wants to learn the hard way like the case of Nashville club. Personal qualities such as hard work and dedication displayed by a person in his/her work place should not obscure a due process from being carried out as a routine.

Case 3: Frequent flier’s fraud crashes

Summary of the facts for the case

The case explains about Marcus Lane, a geologist of a privately owned organisation, which specialized in engineering and environmental management. Lane was involved in several business journeys between North and South America in his course of discharging his duties. However, lane was involved in a fraudulent case where he cheated on his expense report submitted to the organisation for reimbursement. Heidi McCullough who was working as the company’s accountant discovered his fraud. The accountant identified a discrepancy between flight booking and boarding time for a flight between Minneapolis and San Francisco. The boarding pass showed that the flight departed at 6: 15 AM while the receipt indicated a departure schedule of 6:15 PM. Further scrutiny revealed that the geologist had taken lunch near San Antonio Airport on the same day. This made the accountant to suspect that something was amiss with the receipts and decided to investigate the case.

Lane had made a phony pass to make it appear that he had boarded the flight in order to defraud the company off the reimbursement, which was higher than in the actual expense. The failure by Lane to book his flight through a travel agency was mentioned by the Williams, the internal auditor, to the management of the company but the management assumed the concern since Lane had worked with the company for many years and they had trusted him. Later after the auditor presented her case to the legal department, it was placed under protection and was not pursued further. Williams decided to table the case to Lane’s supervisor and two managers summoned Lane. From this point, Williams was fully supported by the managers after tabling her evidence against other fraudulent employees and measures were put into place to ensure that travel booking were made through an agent and paid by the company, using credit card.

Description of the Financial Procedure

The financial procedure followed in Tyler & Hartford Company required that when an employee travelled on behalf of the company, he/she be supposed to be reimbursed on the amount of money spent. However, there was no control to curb fraudulent claims by the employees. This situation led to loss of over $4,000 by Lane alone within a period of ten years. Lane would produce phony boarding passes and present them to the accounts department for reimbursement. This procedure attracted fraudulent claims by other employees which resulted in immense losses by the company.

Description of the Fraudulent Activity

Lane made a phony boarding pass which did not concur with the departure time recorded on the receipt. Both the boarding pass and the receipt had been manipulated with an intention to defraud. Also after the manipulation, lane was unable to discover that the departure time recorded on the pass and receipt did not agree. As a result, this attracted a genuine concern from the accountant who decided to call the airline involved and confirm. Initially, it was taken to be an error by the airline company but after the receipts of a car booking and the lunch taken near San Francisco failed to agree with the departure time, the auditor detected that there was an intention to defraud. When interrogated, Lane even confessed his actions and was even remorseful. Lane explained that he was facing some financial challenges after divorcing his wife. The company had trusted Lane so much that they refused to take the precautions suggested by the internal auditor earlier. The company therefore exhibited negligence by its failure to put up a system which would minimize the fraudulent cases.

Actions Taken and Internal Controls Recommended

After discovery of the fraudulent action by Lane and other involved staff, Williams received full support from the top management pertaining to enforcement of travel policies and regulations within the entire company. Travel bookings using the company’s credit cards through a travel agent was recommended and fully implemented within the entire company. Audit work became easier due to ease of access and tracking of events.

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