Rita Smith, a smart pretty lady, stole £500,000 from a small boutique where she had been employed for 12 years as a bookkeeper. Rita confessed that she had been stealing from the company for eight years and had blown all the proceeds on herself and her family before she was finally caught. The boutique is a small private business and only engages the services of an accountant to prepare the company’s tax returns on an annual basis in order to comply with the HRM Revenue requirement, so the business was never audited. Rita also acted as the store’s “accounting department.” She made deposits, signed cheques and reconciled the store’s bank account. After 4 years of unrelenting temptation, Rita finally gave in. Thereafter, for eight years, she systematically stole money from the boutique using the same method. She would make out a company cheque to herself (in her own true name), sign it and deposit the proceeds in her personal bank account. To cover the theft, Rita would do two simple things: First, she would enter “cancelled” on the cheque stub when she wrote the cheque to herself. Next, she would add the amount of the theft to the cheque stub when she paid for inventory. For example, if she took £5,000 and was paying a supplier £10,000, she would show £15,000 on the supplier’s cheque stub. That way, the cash account would always stay in balance. Rita’s fraudulent activities went undetected for 8 years.
Required
a. Cressey’s “fraud triangle” states that three factors—non-shareable financial need, perceived opportunity, and rationalization—are present in cases of occupational fraud. Which of these three factors, if any, is the most important in causing executives, managers, and employees to commit occupational fraud?
b. Explain what trail was created by Rita’s Fraud that could possibly tip off an auditor that a fraud might be occurring.
c. In general, how was Rita Smith able to perpetuate and conceal this fraud for so long undetected?
d. Critically examine what created an opportunity for Rita Smith to commit the fraud.
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