Investigation 6 Fraud Investigation Paper Name Class Date Pr

Investigation 6fraud Investigation Papernameclassdateprofessorfrau

The investigation of allegations against a plant employee of an acquired corporation, Lakes Inc, has revealed instances of false expense claims and asset misappropriation. The investigation was initiated after an anonymous tip on June 12, 2007, alleging fraudulent purchase of a computer server that was actually a high-definition television. An internal investigation confirmed there was no purchase of a computer server; instead, a television was bought, indicating intentional misstatement and fraud.

Asset misappropriation, as defined by Wells (2001), involves employees utilizing company assets for personal gain or misuse. Such schemes encompass theft of cash, falsification of expense claims, and inventory theft. Disbursement fraud, specifically, entails manipulating receipts or invoices to facilitate theft or personal purchase reimbursement. In the Lakes Inc case, the investigation, which spanned from August 2007 to November 2009, uncovered a scheme involving purchasing officer Bob Smith and his administrative assistant, Mary Bad. They developed a scheme to produce false invoices for personal items, purchased with company credit cards, and concealed the original receipts.

The investigative process included verifying invoices with vendors, examining the physical asset database, and interviewing vendors. The database, which tracks assets valued at $1,000 or more, lacked entries for the purported computer server, indicating its non-existence or misplacement. The invoices for other personal items—such as a notebook computer, digital camera, and home theater system—were matched to the database records, revealing they were false or incomplete. The vendor, Sterns, confirmed suspicious purchases, especially because Smith and Bad insisted on personal pickup, raising further suspicion.

Bob Smith and Mary Bad were found to have colluded to create false invoices, manipulated asset records, and misappropriate company funds totaling approximately $8,795.60. These acts represented a serious breach of trust, highlighting the importance of internal controls, employee education, and rigorous record-keeping to prevent asset misappropriation. Asset misappropriation constitutes about 80% of occupational frauds, with median losses around $150,000 (Coenen, 2008). Typically, such thefts are straightforward and detectable with proper financial training and internal oversight.

The legal implications for Smith and Bad are severe, with potential charges of fraud and attempted fraud. Given the dollar amount involved and federal statutes, penalties could include six to fourteen years of imprisonment, depending on prior convictions and specific legal charges (Berman, 2010). To deter similar acts, Lakes Inc should enforce strict controls, improve oversight mechanisms, and foster a culture of ethics and accountability. Training employees to recognize and report fraudulent activities is crucial. Demonstrating a firm stance against theft sends a clear message that such misconduct will face consequences, thereby protecting organizational assets and morale.

In conclusion, the Lakes Inc case exemplifies the damaging impact of asset misappropriation facilitated by collusion among employees. Effective internal controls, auditing, and employee awareness are essential in combating occupational fraud. Organizations must continuously evaluate their fraud prevention strategies to minimize vulnerabilities and uphold integrity within their operations.

Paper For Above instruction

Asset misappropriation remains one of the most prevalent types of occupational fraud within organizations, and the Lakes Inc case exemplifies how internal controls can be circumvented by employees with malicious intent. The case highlights the importance of vigilant oversight, accurate record-keeping, and employee training in fraud prevention. This paper will analyze the case, discuss the nature of asset misappropriation, evaluate the investigative process, and propose strategies to prevent similar incidents in the future.

What is Asset Misappropriation?

Asset misappropriation involves theft or misuse of a company's assets by employees or internal stakeholders. As defined by Wells (2001), asset misappropriation includes theft of cash, inventory, or other tangible assets, often accompanied by falsified documentation such as false invoices or fake expense claims. Disbursement schemes specifically involve manipulating financial documents or records to divert funds for personal use. These schemes are especially dangerous because they can be sophisticated and simultaneous with routine business processes, making detection challenging without proper controls.

The Lakes Inc Fraud Case: Background and Discovery

In this particular case, the immorality began with a false expense claim for a computer server, which was ultimately revealed to be a television. The investigation uncovered that Bob Smith, the purchasing officer, and Mary Bad, his administrative assistant, engaged in creating fictitious invoices and manipulating asset records. Their scheme involved purchasing personal items with the company's credit card and then fabricating invoices that falsely claimed these purchases were for company assets or expenses. The fact that the physical asset database did not record a computer server purchase was a critical clue indicating that the asset was either never acquired or was misappropriated.

Investigation and Internal Controls

The investigation process involved several steps: verifying invoices with the vendor, cross-referencing the physical asset database, and conducting face-to-face interviews with vendor representatives. The vendor, Sterns, corroborated suspicious behavior, observing that Smith insisted on personally collecting certain items, which was unusual. The asset database, which tracks high-value non-disposable assets, failed to register the alleged purchase of the server, further emphasizing internal control weaknesses. This indicates a lack of proper oversight and record-keeping, allowing fraudulent activities to occur undetected.

Consequences and Legal Prosecution

The total loss approximated $8,795.60, a significant amount relative to the company's size and internal controls. The offenders, Smith and Bad, were fired and faced potential criminal charges. Under federal law, asset misappropriation involving significant sums can lead to felony charges, with sentences varying from six to fourteen years, depending on prior convictions and specific statutes. The case illustrates how internal integrity failures combined with collusion among employees can cause substantial financial harm and legal consequences.

Prevention Strategies and Recommendations

To prevent future incidents of asset misappropriation, organizations must implement comprehensive internal control measures. These include segregation of duties, regular audits, real-time tracking of assets, and strict approval processes for expense claims and purchases. Training employees to recognize red flags and encouraging a culture of transparency are also vital. The Lakes Inc case underscores the importance of internal vigilance, accountability, and prompt investigation of suspicious activities. Modern technological solutions, such as automated asset management systems and advanced software for monitoring transactions, can significantly reduce vulnerabilities.

Conclusion

The Lakes Inc asset misappropriation case exemplifies how internal fraud schemes can go unnoticed without rigorous controls and oversight. The collusion between Smith and Bad facilitated a scheme that caused tangible financial loss and damaged organizational trust. Effective fraud prevention requires a layered approach: strong internal controls, ongoing employee education, and a culture that discourages unethical behavior. Organizations must continuously adapt their antifraud strategies in line with emerging risks to safeguard their assets and reputation.

References

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• Coenen, T. (2008). Asset Misappropriation. Journal of Accountancy, 206(4), 89-91.
• Wells, J. (2001). Enemies Within: Asset Misappropriation Comes in Many Forms. The Fraud Beat. Journal of Accountancy, 2-5.
• Association of Certified Fraud Examiners. (2020). Report to the Nations: 2020 Global Study on Occupational Fraud and Abuse. ACFE.
• Brennan, S. (2014). Fraud Prevention and Detection Techniques. Journal of Financial Crime, 21(3), 259-276.
• Kranacher, M. J., Riley, R. A., & Wells, J. T. (2011). Forensic Accounting and Fraud Examination. Wiley.
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• Albrecht, C. C., Albrecht, W. S., Albrecht, C. O., & Zimbelman, M. F. (2014). Fraud Examination. Cengage Learning.