Bradmark Comprehensive Case

Fraud Audit Issues--Chapter 12

Solutions

To answer these questions requires that you install ACL™ Desktop Edition (full educational version) on
your computer. To do so follow the instructions on the CD that came with the textbook. The ACL
Project and ACL files used in the Bradmark case are located in the Bradmark Data Folder on the
website. Download these files to your computer and click on the Bradmark 04 ACL icon. ACL will
automatically open the case.

Based on your analysis of Bradmark’s internal controls and audit tests covered in chapters 9, 10, and 12,
perform tests that could reveal the existence of fraud in the company. Design your tests around the
Fraud Detection Techniques discussed in Chapter 12 of the textbook. Hand in a report describing the
audit tests and your conclusions about the results of the test. To document your findings, include in your
report ACL printouts showing details of test results and the command log.

ANS:

General Control Problem

Because of James Walker’s familiarity with the purchases system, he was asked by top management
to temporarily oversee the initial running of the new system to ensure a smooth transition from the
old legacy system. After several months, Walker was offered a promotion to Warehouse Manager
and given permanent responsibility for product purchasing.

This act by management placed Walker in a situation that allowed him to exploit inherent
weaknesses in the system and perpetrate a fraud. As part of the fraud Walker established himself as a
fictitious vendor number 11663. The fraud methodology involved using his uncontrolled access to
the system to falsify purchase orders to his phony company and use voided receiving report numbers
to simulate inventory receipts. These two events trigger the system to create a voucher payable
record. By submitting vendor an invoice from his fictitious company, Walker effectively tricks the
system into writing him a check.

This fraud can be uncovered by performing the following tests:

1) Join the Vendor and Employee files on the Street and Emp Addr fields respectively.
Two Records are returned. James Walker's is an exact match, the other is not.

2) An analysis of vendor purchases shows that 21% of them are with Vendor Num 11663.
For Example: CLASSIFY Purchases on Ven Num and subtotal on Ext Cost = $64,715.84

3) A join of Purchase Order, Voucher Pay, and Rec Report on PO Num reveals discrepancies
between quantities ordered and received. Nevertheless, the full amount is paid to the vendor.

4) Cash payments to vendor 11663 total $82,586.16.

Filter Chk_Register for this vendor and TOTAL on Chk Amnt = $82,586.16
CLASSIFY Vouchers Pay on Ven Num = $82,715.84

5) No Receiving reports exist for vendor 11663.

CLASSIFY the Receiving Report file on Ven Num = no receipts