Cardinal Wholesalers Inca Fraud Examination Auditing Case

Cardinal Wholesalers Inca Fraud Examinationauditing Case Simulatio

Cardinal Wholesalers, Inc.© A Fraud Examination/Auditing Case Simulation by Thomas Buckhoff, Ph.D., CPA/CFF, CFE and Bonita Peterson Kramer, Ph.D., CPA, CMA, CIA © 2011. No part of this work may be reproduced or used in any form or by any means without the written permission of the authors.

To Students: Welcome to Cardinal Wholesalers, Inc.: A Fraud Examination/Auditing Case Simulation! Pedagogical research indicates that the best way to learn is by doing. This case simulation provides you with the opportunity to learn basic fraud examination/auditing principles through hands-on active participation.

A brief description of the case is as follows: This case simulation replicates the actual investigative steps that were followed in uncovering a $1.75 million fraud scheme. The case background is based on an actual cash disbursements fraud investigated by my partner, Tom O’Halloran of Forensic Solutions, LLC, and me. Since the fraud involves an on-book scheme, you can uncover the fraud by examining accounting records and underlying source documents. The vendor database contains 1,000 vendors making it too time-consuming and inefficient to examine all the source documents underlying vendor payments. Using the red flags most common to fictitious vendor schemes, you must first use Excel’s AutoFilter function to narrow down the vendor list to the six most “suspicious” vendors.

Using a password derived from the names of the six vendors, you will then access a PDF file containing three invoices from each of the six vendors to determine the most suspicious vendor. Next, using the Taxpayer ID number as the password, you will examine the most suspicious vendor’s recent bank statement along with canceled checks to determine whether the fraud is a fictitious vendor scheme or a pass-through scheme. Finally, you will write a brief report summarizing the evidence and estimating the fraud loss suffered as a result of the fraud scheme you uncovered. The report should also include specific recommendations for preventing this type of fraud in the future.

This case simulation increases competencies in the following areas: Problem solving, critical thinking, and document examination skills; computer skills, especially the ability to query a vendor database on Excel; technical skills relating to the detection, investigation, and prevention of fraud; research and professional writing skills.

Paper For Above instruction

The investigation of financial fraud within organizations, particularly in the context of accounts payable and vendor payments, is crucial for safeguarding assets and maintaining corporate integrity. The Cardinal Wholesalers Inca fraud examination simulation offers an immersive learning experience that emphasizes real-world investigative procedures, critical thinking, and analytical skills necessary for fraud detection and prevention. This paper presents a comprehensive analysis of the case, highlighting the investigative steps, analytical techniques, and strategic recommendations derived from the simulated scenario.

Understanding the importance of proactive fraud detection mechanisms begins with recognizing common red flags associated with fictitious vendor schemes. These can include irregularities in payment patterns, vendors with incomplete or suspicious documentation, and anomalies in bank statements and canceled checks. In the simulated case, the initial step involves filtering a large vendor database of 1,000 entries using Excel's AutoFilter function to identify vendors displaying suspicious behaviors. This approach relies heavily on data analytics and pattern recognition—core skills for auditors and fraud examiners.

The subsequent step involves accessing detailed financial documents—specifically, invoices from the most suspicious vendors. Employing password protection based on vendor names ensures data security and integrity during analysis. This phase highlights the importance of securing digital evidence and employing forensic techniques to identify discrepancies indicative of fraud. Through detailed examination of invoices, auditors can identify any inconsistencies in amounts, dates, or vendor details that may suggest fictitious invoicing or pass-through schemes.

Further, the investigation uses the Taxpayer ID number as a password to access bank statements and canceled checks. This step is essential for establishing the nature of the fraudulent activity—whether it involves fictitious vendors created solely for the purpose of embezzlement or pass-through arrangements designed to disguise illicit transfers. Such analysis requires a keen understanding of financial flows, banking records, and the typical red flags associated with fraud schemes.

The culmination of the investigation involves synthesizing findings into a comprehensive report that estimates the financial loss resulting from the identified schemes and proposes robust controls to prevent future occurrences. Recommendations may include enhanced vendor vetting procedures, segregation of duties, and automated alerts for unusual payment patterns. Incorporating technology such as data analytics software and continuous monitoring systems can significantly reduce vulnerabilities.

Beyond technical skills, the case emphasizes the importance of professional judgment, ethical considerations, and clear communication in presenting findings to stakeholders. The ability to translate complex forensic findings into actionable recommendations is vital for effective fraud risk management.

In conclusion, the Cardinal Wholesalers fraud simulation meticulously illustrates key fraud detection procedures, integrating analytical tools with investigative techniques. Developing competencies in problem-solving, critical thinking, and technical examination supports organizations' efforts to deter and detect fraud proactively. Furthermore, ongoing education and training in forensic auditing and fraud prevention remain essential for sustaining organizational resilience against financial crimes.

References

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• Association of Certified Fraud Examiners. (2022). Report to the Nations: Global Study on Occupational Fraud & Abuse. ACFE.
• Casey, E. (2011). Digital Evidence and Computer Crime: Forensic Science, Computers, and the Internet. Academic Press.
• Rotmant, D. (2017). Forensic Accounting and Fraud Examination. Wiley.
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