Sample Fraud Schemes
The purpose of this paper is to identify potential financial statement fraud schemes at Apollo Shoes and describe the type of evidence to look for to determine whether fraud is occurring, and to finally outline how the substantive procedures previously identified will be used to analyze potential schemes.
Potential financial statement fraud schemes
After reviewing the audit inquiry response from Lawyers “R” Us, LLC, it has been determined that the current litigant Apollo Shoes is involved in could result in as much of a loss as $10,000,000, with legal fees considered. This amount was not accrued for as a liability.
After reviewing the board meeting minutes, two related-party transactions were discovered. Josephine Mandeville is an outside board member and audit committee member. She was hired and paid $200,000 for her consulting on the new computer equipment purchase and installation that $1,000,000+. This entire cost, including Mandeville’s consulting fee, was capitalized. Additionally, a $1,000,000 loan was made to the CEO’s personal secretary with a 1% interest rate and a maturity date in 37 years. Hiring Ms. Mandeville and making this sizable loan were approved by the board, but it is uncertain whether the board is providing effectively overseeing the financial reporting process and internal controls as it pertains to related-party transactions.
After reviewing the accounts receivable aging and accounts receivable confirmations, it was discovered that Apollo Shoes has $21,660,477.61 that is considered past due, or 60 or more days outstanding. This amount includes $14,784,144.03 owed by Mall-Wart. Mall-Wart entered into a voluntary bankruptcy in early November and made Apollo aware of this. Apollo subsequently sent another $5m of orders that Mall-Wart claims they didn’t place over and recorded an additional receivable. Consequently, Apollo only has a $1,262,819.88 allowance for bad debt. Apollo’s decision to record the revenue for the
Potential financial statement fraud schemes
After reviewing the audit inquiry response from Lawyers “R” Us, LLC, it has been determined that the current litigant Apollo Shoes is involved in could result in as much of a loss as $10,000,000, with legal fees considered. This amount was not accrued for as a liability.
After reviewing the board meeting minutes, two related-party transactions were discovered. Josephine Mandeville is an outside board member and audit committee member. She was hired and paid $200,000 for her consulting on the new computer equipment purchase and installation that $1,000,000+. This entire cost, including Mandeville’s consulting fee, was capitalized. Additionally, a $1,000,000 loan was made to the CEO’s personal secretary with a 1% interest rate and a maturity date in 37 years. Hiring Ms. Mandeville and making this sizable loan were approved by the board, but it is uncertain whether the board is providing effectively overseeing the financial reporting process and internal controls as it pertains to related-party transactions.
After reviewing the accounts receivable aging and accounts receivable confirmations, it was discovered that Apollo Shoes has $21,660,477.61 that is considered past due, or 60 or more days outstanding. This amount includes $14,784,144.03 owed by Mall-Wart. Mall-Wart entered into a voluntary bankruptcy in early November and made Apollo aware of this. Apollo subsequently sent another $5m of orders that Mall-Wart claims they didn’t place over and recorded an additional receivable. Consequently, Apollo only has a $1,262,819.88 allowance for bad debt. Apollo’s decision to record the revenue for the