A local hank reported that it lost $150,000 as the result of employee fraud. Ray Fairburn is not clear on what is meant by “employee fraud.” Explain the meaning of fraud to Ray and give an example of fraud that might occur at a bank.
Fraud: Fraud is a deliberate and deceptive action of an employee to obtain unlawful gain from the employer.
To define: Fraud with an example
Explanation of Solution
Definition: Fraud can be defined as a deliberate and deceptive action of an employee to obtain unlawful gain from the employer.
Example: A bank employee could transfer the money from any customer deposit account to his personal accounts through computer. This kind of internal embezzlement committed by bank employee, against his employer is referred to as employee fraud.
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Chapter 7 Solutions
FINANCIAL ACCOUNTING:TOOLS FOR BUSINESS
- Allison Everhart, an employee in accounts payable, believes she can run a fictitious invoice through the accounts payable system and collect the money. She knows payments are subject to an audit. Which account would be the best place to hide the fraud?a. Inventory.b. Wage expense.c. Consulting service expense.d. Property tax expense.arrow_forwardSuppose that someone stole your ATM card and withdrew $1,000 from your checking account. How much money could you lose (according to federal legislation) if you reported the stolen card to the bank:arrow_forwardConsider each of the following situations. Is there a potential problem? Which part of the fraud triangle is involved, if any? A. Susan is an accounts payable clerk. She sets up creditors in a financial database and pays invoices as they come in. Last year, she won employee of the year and is a valued employee. Through the grapevine, Susan's boss just learned that Susan's brother has a gambling problem. B. Now suppose that Susan from situation A is now secretary for the head of the marketing department. She keeps track of the vice president of marketing's schedule and handles the correspondence. C. Keith has been employed for 6 months as a teller at a community bank. All is going well, and his cash drawer has had shortages only twice (of less than P500). The shortages were traced and the problems corrected. D. At the company Memorial Day picnic and golf outing last week, Nancy noticed that June moved her ball to a better lie when she thought no one was looking. There…arrow_forward
- Which of the following scenarios reduces the risk of an employee fraud? Group of answer choices An accountant being responsible for approving payments to a vendor The bank reconciliation being prepared by an accountant Remittance advices being sent directly to the cashier A sales clerk having access to the cash registerarrow_forwardif a manager is incharge of the Credit Right Software Corp department which involves sells leading account sooftare product and two of his employess commited fraud. How should the manager prepare himself to understand what causes individuals to commit fraud and how it happens?arrow_forwardOn February 15, 2022, Kate Collins, owner of Kate’s Cards, asks you to investigate the cash han- dling activities in her business. She believes that a new employee might be stealing funds. “I have no proof,” she says, “but I’m fairly certain that the January 31, 2022, undeposited receipts amounted to more than $12,000, although the January 31 bank reconciliation prepared by the cashier (who works in the treasurer’s department) shows only $7,238.40. Also, the January bank reconciliation doesn’t show several checks that have been outstanding for a long time. The cashier told me that these checks needn’t appear on the reconciliation because he had notified the bank to stop payment on them and he had made the necessary adjustment on the books. Does that sound reasonable to you?” At your request, Kate shows you the following (unaudited) January 31, 2022, bank reconciliation prepared by the cashier: KATE’S CARDS Bank Reconciliation January 31, 2022 Ending balance from bank statement . . . $…arrow_forward
- Nino Moscardi, president of Greater Providence Deposit & Trust (GPD&T), received an anonymous note in his mail stating that a bank employee was making bogus loans. Moscardi asked the bank’s internal auditors to investigate the transactions detailed in the note. The investigation led to James Guisti, manager of a North Providence branch office and a trusted 14-year employee who had once worked as one of the bank’s internal auditors. Guisti was charged with embezzling $1.83 million from the bank using 67 phony loans taken out over a three-year period. Court documents revealed that the bogus loans were 90-day notes requiring no collateral and ranging in amount from $10,000 to $63,500. Guisti originated the loans; when each one matured, he would take out a new loan, or rewrite the old one, to pay the principal and interest due. Some loans had been rewritten five or six times. The 67 loans were taken out by Guisti in five names, including his wife’s maiden name, his father’s name,…arrow_forwardGladys is in charge of receiving all customer payments, recording the payments, and depositing them at the bank. What element of the fraud triangle is best described here? Group of answer choices Opportunity Rationalization Incentive/Pressure Attribution Gladys has large amounts of student loan debt and a crippling gambling habit. She works part-time job in another city. What element of the fraud triangle is best described here? Group of answer choices Opportunity Fraudy fraud Pressure/incentive Rationalizationarrow_forward30. Georgina is in dispute with her bank about some debits to her business account which she does not recognize. Which of the following is Georgina's duty with regards to her fiduciary relationship with her bank? To check bank statements To reimburse the bank if her personal identification number (PIN) is used fraudulently by a thief to obtain cash To keep her bank cards safe To maintain the account in credit unless specifically agreed otherwise 31. Helkats plc ensures that it offers breakthrough products in the market niche in which it operates. In terms of Porter's generic competitive strategies, Helkats plc's strategy is Cost leadership Cost-focus Differentiation Differentiation-focusarrow_forward
- Match each situation with the fraud triangle factor (opportunity, financial pressure, or rationalization) that best describes it. (a). An employee has check-writing and -signing responsibilities for a small company, and is also responsible for reconciling the bank account. (b) An employee earns minimum wage at a firm that has reported record earnings for each of the last five years. (c) An employee has an expensive gambling habit. (d) An employee's monthly credit card payments are nearly 75% of her monthly earningsarrow_forwardWhich of the following is true in the case of forgery? Forgery does not include anything done by typing or word-processing. If a person signs his own check for $100 cash, knowing that there is only $50 in the account, and manages to cash it, the check is a forgery. The "forged instrument" must in some way be false, as in a false signature, a backdating of an existing instrument, or falsely modifying a corporate name. Forgery can be committed only by forging signatures. Alteration of an already existing document does not constitute forgery.arrow_forwardA long-time employee had become such a trusted employee that their bosses had put them in charge of paying bills, balancing bank accounts, and handling other cash management responsibilities. The employee became ill and took sick leave. During their absence, their employer determined they had been stealing company cash for years by forging checks and tamporing with company documents. The stolen cash was used to stoke a gambling habit. In total, the employee stole nearly $320,000. Answer questions in short answers What were the employee's perceived opportunities? What pressure did the trusted employee have to commit fraud? How did the fact that they were a trusted employee give them more opportinity to commit fraud? How do vices motivate people to commit fraud?arrow_forward
- Auditing: A Risk Based-Approach (MindTap Course L...AccountingISBN:9781337619455Author:Karla M Johnstone, Audrey A. Gramling, Larry E. RittenbergPublisher:Cengage Learning