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Unformatted text preview: ateral for a Loan,
the Receivables are sold,
but the Loan is NOT repaid.
The Account Receivable balances
are inflated in order to qualify
for large loans.
Chapter 5 Forensic Accounting 60 How Are Borrowing Against
Accounts Receivable Caught ?
6. Evaluate Internal
1. Proper segregation of
Controls for cash
2. Review monthly bank
3. Investigate difference
7. Use aging reports to
identify and examine
confirmations and the
credits, write-offs on
A/R ledger balance.
accounts over 120 days
4. Look for Unusual Entries
in sales journal, general
ledger, cash receipts
8. Compare dates of
journal, A/R subsidiary
deposits with cash
5. Use confirmations to
9. Compare invoice to
verify A/R balances.
c Section 5041
Note: Reference List Textbookustomers’ order
Chapter 5 Forensic Accounting 61 Inventor
Note: Reference Textbook Section 5051
Chapter 5 Forensic Accounting 62 Inventory Fraud
Short Shipment with Full
Prices Chapter 5 Forensic Accounting 63 Stealing Inventory
To Sell – flea market. Return stolen inventory for
Chapter 5 Forensic Accounting 64 How Is Stealing Inventory
• Strong Internal Controls • Surprise physical inventory counts
• Trend Analysis to review activity with
• Analytical Procedures
Chapter 5 Forensic Accounting 65 Short Shipment with Full
Prices Fraud by “Short Shipment” occurs
when payment is made in full
however the vendor
less than what was ordered.
The main element of this fraud is
Chapter 5 Forensic Accounting 66 How Is Short Shipment Fraud
Compare Inventory Received
with Quantity Ordered
Surprise physical inventory counts
Review journal entries for inventory
Look for: Related Party Transactions and
Chapter 5 Forensic Accounting 67 Account
Note: Reference Textbook Section 5056
Chapter 5 Forensic Accounting 68 Accounts Payable Fraud
Vendor Who May Be An Employee
Above-Average Payments Per Vendor
Invoices Just Below Approval Amounts
Rapid Increase Of Invoice Activity From A
Vendor’s Invoices Have Sequential Invoice
Chapter 5 Forensic Accounting 69 Benford’s Law – Major Digit
First & Second Digit Analytical Tests
First Digits Test – The first digit of a number is
the leftmost digit with the understanding that
the first digit can never be a zero.
For example, the first digit of 7,380 is “7.”
Second Digits Test - The second digit of a...
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