WHEN YOU EXAMINE AN ALLEGED FRAUD, many of the facts are not readily apparent. Fraud examiners must dig up the hidden facts. In this casebook, you will learn a few fraud examiner tools and how to prepare a fraud examination report, associated schedules, and trial‐ready audiovisuals.

Fraud examiners work in public and private entities: law enforcement agencies, insurance companies, Certified Public Accounting (CPA) firms, Certified Fraud Examination (CFE) firms, consulting firms, and corporate and university internal audit departments, to name a few. In these cases, you are working for an independent forensic accounting firm that specializes in forensic accounting and fraud examination. You work for an attorney under attorney‐client privilege (i.e., your report is not readily available to other parties).

Fraudsters have hidden personal and/or financial problems that function as the pressure (motive) for committing the fraud. In these cases, you must discover their hidden problems by response to the requirements of the insurance contract, subpoena, and after serving a properly signed authorization to release financial records to the correct source and requesting the correct information. If you want to learn more about hidden personal and/or financial problems, review the doctoral research of Donald R. Cressey.

All five cases in this book are connected via marriage. Greg and Tonya Larsen are husband and wife and their finances are intertwined. Greg's finances impacts Tonya's finances, and vice versa. Greg owns and operates Larsen Convenience Store, Canton, Georgia, as a sole proprietorship. Tonya is the office manager for Anderson Internal Medicine in Lawrenceville, Georgia. As a sole proprietor, Greg must file an Internal Revenue Service (IRS) Schedule C (Profit or Loss from Business—Sole Proprietorship) with his personal federal income taxes.

FRAUDULENT FINANCIAL STATEMENTS

Around midnight on December 31, 2015, a fire breaks out at Larsen Convenience Store.

Under his business insurance policy, Greg must submit a proof of loss and financial documents to his insurance company and submit to an examination under oath (EUO). Insurance companies often hire independent forensic accounting firms to perform a business interruption (BI) calculation that covers the loss of income as a result of the disaster. The BI calculation, which is also used as a fraud examination tool, includes net profits that would have been earned, fixed costs that continue to be incurred during the business interruption, and reimbursement of reasonable extra expenses. The calculation starts with a horizontal and vertical analysis of several months, quarters, or years of financial statements (whatever is available). This analysis often detects anomalies for closer examination and is used to calculate an estimate of the actual loss. It also detects trends (e.g., seasonality, increases/decreases in revenue and expenses) and can be compared to benchmarks (comparisons with similar‐sized companies in the same industry), budgets, and required reports to franchisers and industry suppliers.

In large or suspicious disasters, insurance companies also hire attorneys to conduct the EUO. Crucial to developing EUO questions is the BI and/or fraud examination report.

The BI calculation often takes four to eight months because of delays in receiving needed financial information. During this period, the insured often receives no income from the business.

CHECK FRAUD, DEBIT CARD FRAUD, CASH LARCENY

Just after Greg submits the proof of loss and requested financial documents (last three IRS individual tax returns [including Schedules C] and last three SBA personal financial statements) to the insurance company in late March, Anderson Internal Medicine receives a call from its banker. The business checking account is overdrawn by thousands of dollars. Working late into the night, Tonya changes IDs and passwords, shreds patient billing files, and quits.

FRAUDULENT EDITS/ADJUSTING JOURNAL ENTRIES TO CASH RECEIPTS

After Tonya quits, Jennifer Anderson discovers adjustments to cash receipts.

You previously noted from your bank reconciliation that there is a significant amount of missing cash. You follow up on Dr. Anderson's discovery and perform additional work to identify the reason for the difference, the method of concealing the difference, and quantity of the money stolen.

EXCEL PIVOT ANALYZES AND SUMMARIZES A HUGE AMOUNT OF DATA

You have spread six months of transactions (October through February) from the Anderson Internal Medicine bank statement. What does it mean? What other trends or interesting facts do you find? You will learn and use Excel Pivot, an easy to use data analytics function inside of Excel. It is easy to use and quickly analyzes, summarizes, and presents your data in a simplified format.

Dig deep! Not all company names listed on the bank statements are what they seem. For example, a $3,000 debit payment to MG Sports Grill is actually $3,000 paid to Marti Gras Atlanta (a strip club). You might find purchases for expensive entertainment, food and drinks, or travel. Are they applicable to Anderson Internal Medicine?

TRACING EXCEL PIVOT RED FLAGS BACK TO SOURCE DOCUMENTS AND DOCUMENTING THE FLOW OF MONEY

In analyzing six months of transactions from the Anderson Internal Medicine bank statement, you detect a $36,000.00 deposit from Greg Larsen and a number of disbursements that appear to benefit Greg Larsen, including one to a casino. What do these red flags mean? Why are these transactions funneled through Anderson Internal Medicine instead of Larsen Convenience Store? Is there a conspiracy, money laundering, or some other activity involved?

Although you thought you had completed Larsen Convenience long ago, these provide new leads that must be followed. Learn how to prepare the wording for subpoenas so you can trace forwards and backwards to the originating transaction. Learn how to document the flow of money from several bank accounts on schedules and simplify the movement via audiovisuals. Do you need an addendum to your report?