Forensic Accounting Case Study 9-26 (1)

Employees and coworkers are the most likely to detect

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Employees and coworkers are the most likely to detect fraudulent behavior due to the nature of their position, they can see a more intimate view the person or act in question as opposed to an outside source. However, tips and complaints do not necessarily mean that a person is committing a crime. The complaints could originate from an employee with a grudge or even someone who does not understand the reasons behind the accused person’s activity. The last symptom of fraud is internal control weaknesses. While internal control weaknesses do not indicate fraud is taking place, they are listed because where there exists weakness there is an opportunity of exploitation. This opportunity is likely to have people who are acting on it or have already done so and as such should be investigated. The fraud symptoms present at MHZ, Inc. include behavioral symptoms, weakness of internal controls, and analytical anomalies. Hal was appointed to the position of CFO within the
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company and as such witnessed a board meeting where the coming quarter projections were being discussed, the management was especially stressed and nervous. They were responding to the pressures of meeting the analysts’ expectations for quarterly earnings. Hal noticed Mark and other key employees exhibiting a level of stress that exceeded that of the other employees involved. He also noticed Mark spending a lot of late nights with one of his internal auditors. At the end of the quarter the company somehow managed to achieve its quarterly goals. The unusual late nights with the internal auditor would suggest that Mark may have been working to find ways to manipulate the numbers involved in order to produce a favorable report. The inordinate level of stress the employees exhibited also could have been seen as indicators of suspect activity. While, quarterly reporting is normally a time of high stress, their behavior came across as more stressed than the other employees who shared the same basic worry. It raises the question as to why these specific people were more stressed than other employees who also had similar quarterly obligations. All of these things coupled with the fact that the company somehow met fourth quarter expectations despite losing a contract with a major vendor in a previous quarter, bring to question the legality of Mark’s late night meetings.
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