Fraud Examination Report

Background

The fraud examination has been conducted on the basis of the claim of Jack Walker, a manager and part owner of the CarpetCircuit Décor. It is a family-run business located in Hornsby, New South Wales, which is occupying selling and installing carpets, marble floor tiles, and blinds. The company has a retail store, office, and warehouse. The claim is related to embezzlement or misappropriation of assets supposedly committed by Daisy Safton, a long-term bookkeeper of the organization. For a better understanding, embezzlement is a main type of financial fraud that can be explained as an ability of personnel to take money out of a firm without noticing managers or owners (Jannike 2015; Smith 2016). It can be caused by a lack of internal control, especially in small and medium businesses, as happened with the CarpetCircuit Décor (Jannike 2015; Kabue 2015; Ashraf 2011). Such situation can develop in the few ways. Firstly, it is enough to have the only employee that makes and authorizes all payments (Jannike 2015; Boyle, Carpenter, & Hermanson 2012). It can lead to paying for personal items or other purposes. Additionally, the staff can claim for not business related expenses (Jannike 2015). In this case, Daisy Safton has claimed for raising her salary reasoning the following fact. She had to take care of her father being actually dead as she confessed. Such situation could be predicted because it is common for working environments with the limited internal control over personnel, who, additionally, have too much responsibility (Jannike 2015; Kabue 2015; Boyle et al. 2012). The suspicion was also endorsed by Walker’s evidences, including the letter from Bardigo First Bank telling that the sum of $300,000 in the account had been overdrawn by $50,000.

Daisy Safton is suspected in embezzlement that has been proven by the Bardigo First Bank. It showed the history of electronic transfers coming from the CarpetCircuit Décor account No. 65742 to the account of Carverra Marble No. 203465, the Eastpac Bank. According to the given statements and information, the CarpetCircuit Décor’s payment ($38,500) was paid to the mentioned account in the Eastpac Bank on the 1^st, 8^th, 15^th, and 22^nd of August, 2017. Moreover, the differences between the invoices of the Carverra Marble found in Safton’s office and the same ones numbered the invoices given by the Bardigo First Bank. Furthermore, the recorded payments from the CarpetCircuit Décor to the Carverra Marble contain 10% in total for all payments. Additionally, the first one had a fictitious vendor (supplier), i.e. the Carverra Marble created by Pham Anh (Andy), the recently hired warehouse manager being Daisy’s brother-in-law. He also seemed complicit in accounting fraud. Due to knowing about the marble quarry in Vietnam, Andy decided to arrange the import because it was half-cheaper than with the original Italian marble. However, the complaints from customers about low-quality tiles made Jack think that something had gone wrong. Therefore, it became necessary to assemble the fraud investigation team, including the Chief Investigator and the Rest-Assured Security staff to conduct the analysis. The Letter of Engagement had been drawn up containing the range of duties provided by the investigation, including reporting to the part owner, Jack Walker, carrying the investigation retracing activities over the past two years, and doing off site or afterhours, etc.

Executive Summary

During the investigation, the fraud examination team from the Rest-Assured Security headed by the Chief Investigator had performed the following actions:

1. Reviewing documents. There had been the document request list containing different types of paper created. It included such as balance sheets, monthly sales tax returns, and sales by the month of a 3-year term, income tax returns and profit and loss statements of a 5-year period, company credit card statements, check registers, bank statements, cancelled checks and deposit slips of a 2-year term; the general ledger; current aged accounts, year-to-date financial statements, and petty cash files. It had been decided that the part of documents older than 2 years would not be observed in the analysis as those papers did not contain the necessary information related to embezzlement.
2. Interviewing of Daisy Safton, a long-term employee being the only person responsible for accounting and suspected in embezzlement of the CarpetCircuit Décor. Jack Walker, a manager and part owner of the company, who claimed for the fraud investigation, had been also interviewed. Other witnesses or employees were not asked, as they were not involved in the examination in order to avoid objection.
3. Using forensic analysis conducted by Angus requested to review the metadata giving source, timing of transactions, and revealing them to unusual accounts, period ends, and not habitual timing. Moreover, reviewing the registry of Windows to find the suspicious data in Daisy’s computer. Then, such action as trying to use the possible combination of usernames and passwords on the Post It on Daisy’s desktop or crack passwords had been implemented as well. Extracting emails along with the website information to conduct a deep review had been done too. Moreover, keyword searching for data related to the accounting and suspected fraud had been used.

The collected information reviewing documents related to accounting of the CarpetCircuit Décor company, and the computer-based analysis as well as other procedures provided by the fraud examination have showed the following fact. Daisy Safton has all the evidences to be suspected in committing embezzlement. The proofs showed that there had been the unusual transactions to the Eastpac Bank. The bank statements taken from her office and the Bardigo First Bank have big differences, which could not be explained by Safton. Despite her earlier affirmations that none had been involved in the fraud, she confessed that Pham Anh (Andy), her brother-in-law, and the warehouse manager of the CarpetCircuit Décor had created the fictitious vendor, i.e.  the Carverra Marble. The purpose was to buy the half cheaper Vietnamese marble and sell it as the Italian original one. The collected data as well evidenced that the customers of the organization had begun to complain of the very low quality of marble tiles. In turn, it gave a rise to suspicions that something had gone wrong. The computer analysis discovered that the computer in Daisy’s office had all the information related to unusual payments. Everything in her computer had been copied and duplicated.

Fraud Examination Procedures

Scope

The ultimate objective of the Fraud Examination Team was focused on the determination of existing embezzlement supposedly committed by Daisy Safton, a trusted and long-term bookkeeper, involving her brother-in-law, Pham Anh (Andy). The latter one had created a fictitious vendor (supplier), i.e. the Carverra Marble and the respective bank account, in which the sums of money were transferred regularly.

The current fraud examination was predicated upon the claim of Jack Walker, a manager and part owner of the CarpetCircuit Décor. He received the letter from the Bardigo First Bank, informing about some differences in the accounts of the company.

Approach

The fraud examination team members were as follows:

(Student’s Name), the Chief Investigator; Jasper Binchy (partly), and the newly-hired accountant helping to conduct the investigation transparently; also, Angus, the IT-expert helping to carry out computer-based investigations, and other Rest-Assured Security staff were included.

The investigational procedures involved reviewing the documents of the 2-year period and some recent papers from banks, including current aged accounts, petty cash files, some year-to-date financial statements, bank statements, check registers, and others. Besides, the team was interviewing Daisy Safton (an accountant) and Jack Walker (a manager and part owner). Besides, the computer-based analysis for discovering the suspect information had been conducted.

The interviewed individuals were only Daisy Safton, a long-term bookkeeper, and Jack Walker, a manager and part owner of the CarpetCircuit Décor. Since the fraud examination had beens carried off site and afterhours, the investigation team had no opportunity to take the evidence from other employees of the organization. Also, Jack Walker had introduced some changes among the personnel to avoid objection and suspicion.

Findings

The present examination had been based upon reviewing documents, collecting the appropriate information, conducting interviews and the computer-based analysis. Reviewing of papers, in particular bank statements along with the interviews, showed that Daisy Safton had indeed committed the embezzlement. During the conversation, the Chief Investigator asked a range of questions related to the Bardigo First Bank statements, transfersm and the Carverra Marble as a fictitious supplier. The bank statements displayed that the supplier had been receiving electronic transfers from the CarpetCircuit Décor account No.65742 to its account No.203465 in the Eastpac Bank. The payment counting $38,500 was done on the1st, 8^th, 15^th, and 22^nd of August, 2017. The invoices of the Carverra Marble found in the office of Daisy Safton and the invoices in the Bardigo First Bank statements had significant differences. The paper evidenced in her office showed that the invoice No.00012 of the Carverra Marble had $35,000. However, the data given by the Bardigo First Bank displayed the sum of $3,500 more, i.e. $38,500. Furthermore, the amounts paid to the fraud firm by the company did not match at all because they had 10% added more. Daisy Safton was asked to explain the difference of $3,500 but she could not do it. Furthermore, the accountant attempted to excuse herself with the stories that she was persecuted; and someone wanted to kill her. Later on, she told that she fell in love in the Internet and wished to help her boyfriend, and so forth. The data displayed that there had been several incidents proving her guilt. Firstly, she overcharged the customers of the CarpetCircuit Décor reasoning that they would receive a better quality of services without telling it to the former owner, Jack Walker’s father. Secondly, Daisy Safton claimed Jack Walker for raising her salary as she was taking care of her ill father being actually dead.

During the interview with Safton, the Chief Investigator managed to find out the further information about the Carverra Marble’s vendor. Daisy told that the buyer had been created by her brother-in-law, Pham Anh (Andy), the recently hired warehouse manager. He had created the supplier intentionally to make some money on it, which was evidenced by his expensive house, car, and so further. Safton told that Andy knew about the Vietnamese marble quarry and the opportunity to buy it 50% cheaper than the Italian one. When Andy supposedly went to Italy to solve some business deals, he, in fact, flew to Vietnam. Moreover, the tickets proved the flight. The examination of the warehouse conducted by Jasper in the morning showed that 500 boxes marked as the Carverra Marble were in the section of the warehouse. The further examination performed by him, Jack, and other members of the fraud examination team resulted in revealing 500 packs of tiles, including 25 packed with marble and 475 of others being empty. Also, the investigators found the key having the tag marked as Hornsby Storage Unit 68. There they found the Eastpac Bank’s statements on behalf of Marble Impressions. Then, they revealed Safton’s Eastpac ATM Visa card along with addressing the same with Marble Impressions having the same address as the company. The number of account (203465) matched with the account details of the Carverra Marble’s invoice found in the office of Daisy Safton.

The computer-based analysis conducted by Angus, an IT-expert, helped to reveal the necessary information related to the fraud. The office of the accountant was photographed in every aspect: the desktop computer, labels, cabling, etc., as it was the standard set of procedures for such kind of examinations (Sharma & Panigrahi 2013). The check of the computer mouse showed that the computer had been not shut down (Imoniana, Antunes & Formigoni 2013). The Post IT flags on the back of the mouse contained some words as marriage and dseftmi, which could be her username and password. Additionally, the open drives and ports were analyzed for containing encrypted files (Imoniana et al. 2013). The RAM and registry information were also scanned and the recently visited local and web-based sites, as well as passwords and log-in data were shown (Imoniana et al. 2013). The cryptographic hash of the evidence file demonstrated that the proofs were preserved. Therefore, it was established that the facts were not modified because the hash had been calculated. Moreover, the original hard drive from Safton’s computer was duplicated, moved to secure storage, and photographed. The additional analysis helped to verify the information again.

Summary

According to the gathered information and conducted analysis, Daisy Safton, a long-term bookkeeper of the CarpetCircuit Décor, is suspected in embezzlement committing. The fraud investigation team has found the documents and bank statements containing the information that does not match with the given by the Bardigo First Bank. Moreover, it has been found that the Carverra Marble’s supplier created by Safton’s brother-in-law was fictitious. It fully proves the guilt of Daisy Safton. The statements made by her are corroborated by the evidence revealed during the investigation and interview.

Impact on the CarpetCircuit Décor

Embezzlement causes not only some direct losses of money and other assets but leads to serious problems in any business. The reason is that the main goal is to generate profit and revenue. Firstly, embezzlement means that the business would carry net losses (Smith 2016). Despite the affirmations of Daisy Safton that she would return the money she had taken, the firm would have to survive (Sharma & Panigrahi 2013). Furthermore, it would be necessary to produce big surplus, for example, to cover the lost costs (Ashraf 2011). The small business like the CarpetCircuit Décor has already faced different complications, though the company has a lot of customers. However, the situation that happened there had many chances to affect seriously the business.

Secondly, embezzlement disrupts regular business operations. Embezzlers use the schemes that could be disruptive to the company far beyond the losses (Smith 2016). In the matter of fact, the same case occurred with the CarpetCircuit Décor. Daisy Safton and Pham Ahn (Andy) used the resources of the organization. Moreover, the company had faced the problem of overcharging its customers when Jack Walker’s father was running the business (Yu 2015). Later, when Andy became a warehouse manager, the quality of tiles worsened, thus, it alienated clients and made them complain. In turn, it made the business incompetent and could bring even worse results if the fraud was not revealed.

Another huge impact on the CarpetCuricuit Décor is related to accounting. It has a very harmful effect on the company’s economic standing. As it has been already mentioned, the CarpetCircuit Décor is a small business where the responsibility for accounting lies only on one person, particularly on Safton. Embezzlement of the substantial amount of money forces to make irrational and rapid decisions (Smith 2016; Boyle et al. 2012). In the other case, when the sum is big enough the company has to cut costs in order to keep up basic operational processes.

Erosion of trust must be the most common influence of embezzlement. Again, the main cause of it is a larger range of responsibilities given to the particular employee (Ashraf 2011). Daisy Safton had enjoyed too much confidence; and as the one can see, it brought the negative results. It is difficult to return trust in the working environment even when the issue has been discovered and solved, and the guilty persons have been found. However, Jack Walker has been given the lesson and should be more prudent in future while hiring a new bookkeeper.

Recommendations

The prevention of theft and embezzlement in the company involves several actions that should be conducted on a regular basis to avoid more serious losses and problems for further. Knowing the fraud behavior of employees and signs of possible embezzlement cannot be enough to save the corporate assets (Kennedy 2012). Everything comes to the ability to identify specifically what measures might be preventive in such situations and implementing them on the real practice (Sharma & Panigrahi 2013; Murray 2016). Any business can be ruined by overtrust. Therefore, the internal control absent in the Carpet Circuit Décor plays an essential role in the operational processes (Murray 2016; Kabue 2015). A manager should exercise some accounting management techniques to find out whether the corporate accounting is conducted properly.

Firstly, it is a monthly reconciliation of the bank statement to notice irregularities timely. Cash should not be left uninvolved because it tempts some employees to commit a theft (Sharma & Panigrahi 2013). Secondly, only one person responsible for accounting is a bad variant (Boyle et al. 2012). It would be better to divide these duties among several employees (Murray 2016; Yu 2015). For instance, one worker should reconcile the bank statement, and another one should write checks. Such action will assure the transparent accounting, more or less. Moreover, it would be useful to control the petty cash (Kennedy 2012). The presence of money in a cash drawer can also be tempting for certain employees. To establish such control it is to require that any petty cash transactions have the log to support it along with two signatures on the refill checks. Additionally, there is an approach of managing by walking around (Murray 2016). In other words, it is watching over workers without meddling to their private sphere, desks, lockers, etc. (Yu 2015; Kennedy 2012). This action is aimed at noticing any unusual activity. Furthermore, it disciplines the employees because they know they are being observed (Ashraf 2011). Returning to the situation of the CarpetCircuit Décor, one should remember that the full trust can be related to interpersonal relationships but not to business ones. Also, travel expenses need to be controlled and have to be supported by appropriate documents. For instance, checking air tickets or hotel bills will assure that the company does not pay for massage services, cinema, or other personal items.

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