Computer fraud suggested answers to discussion questions
Heirloom can defraud the bank by misstating its financial statements in many ways
| 10. Heirloom can defraud the bank by misstating its financial statements in many ways. For example:
- Understating its allowance and bad debt expense (not writing off uncollectible receivables and low-balling the bad debt expense). - Creating fictitious sales and notes receivables. - Intentionally under or over stating the sales commission estimates. |
Unusual decrease in the allowance or bad debt amounts. Sales increase without a comparable increase in receivables; inventory; cost of goods sold; and applicable expenses such as photographer and album expenses, embossing and shipping, and commissions. Sales commissions out of line with those of the industry or past years. |
There is no mention of an external audit by independent CPAs. |
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An external, independent audit. Financial statement analysis, such as Analysis of bad debt to sales and allowance to sales ratios to see if they are below those of past years and those of comparable customers in the same industry. Analysis of sales ratios, comparing sales to receivables; inventory; gross margin, cost of goods sold; and applicable expenses such as album and photographer expenses, embossing and shipping, and commissions. |
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