9-2 Final Project Submission: Case Study Analysis and Report for Management

ACC 646 Final Project Guidelines and Rubric

Overview

The final project for this course is the creation of a case study analysis and report for management.

Forensic accounting has been identified as the fastest growing area of accounting. Fraud examiners must understand the legal aspects of fraud and what constitutes fraud. To be successful in this industry, they must be able to determine why people commit fraud and how to prevent it from happening. Through this analytical process, examiners may then provide organizations with recommendations for improving their internal controls, thus preventing further financial losses and additional harm to their reputations.

For this assessment, you will assume the role of a fraud examiner using a case study based on an actual fraud occurrence. Cressey’s fraud triangle will be used to assess the three conditions present in fraud cases: incentives, opportunity, and rationalization. The case will also provide you with the opportunity to employ basic techniques for identifying red flags for fraud occurrence, recognize legal and regulatory issues, and compose an executive report for management.

The project is divided into three milestones, which will be submitted at various points throughout the course to scaffold learning and ensure quality final submissions. These milestones will be submitted in Modules Three, Five, and Seven. The final product will be submitted in Module Nine.

In this assignment, you will demonstrate your mastery of the following course outcomes:

Analyze the impact of the legal and regulatory environment on perpetrators, witnesses, organizations, and fraud and forensic accounting professionals

Analyze fact patterns, likelihood of occurrence, and significance of potential losses for identifying various fraud acts

Apply appropriate skills and approaches to unstructured problem solving for developing analytical skills indicative of an antifraud practitioner

Determine essential skills for informing how to approach forensic accounting engagements

Formulate recommendations for the improvement of fraud prevention programs based on the design of the organization’s antifraud techniques and controls

Prompt

For this assessment, you will assume the role of a fraud examiner using a case study based on an actual fraud occurrence. You will use Cressey’s fraud triangle to assess the three conditions present in fraud cases: incentives, opportunity, and rationalization. The case will also provide you with the opportunity to employ basic techniques for identifying red flags for fraud occurrence and recognize legal and regulatory issues. Finally, you will compose a report for management in which you will explain your findings and supply management with recommendations regarding how to improve their antifraud techniques and internal controls.

The following is a list of possible companies for the final project. Information on the company, fraud, and financial statements can be found on the

U.S. Securities and Exchange Commission

(SEC) website. The SEC website also provides quarterly, annual, and various filings and Accounting and Auditing Enforcement Releases (

AAER

). You may also select a different publicly traded company from the SEC website for consideration by your instructor.

EnronThe Enron scandal is often referred to as one of the largest accounting frauds in history. Enron was a commodities and energy company formed after a merger of Houston Natural Gas and Internorth. In October 2001, the SEC launched an investigation into Enron’s financial statements. The main issues regarding this fraud include accounting treatment of special purpose entities and derivatives.The

Spotlight on Enron

webpage on the SEC website lists numerous litigation releases regarding the company.WorldComWorldCom is a telecommunications company currently known as MCI, Inc. In 2002, it overstated assets by $11 billion and understating expenses by $3.8 billion. The main issues regarding this fraud include capitalizing costs that should have been expensed and overstating revenues.A

complaint

issued by the SEC against WorldCom provides many details about this case.Tyco International Ltd.Tyco International Ltd., a Swiss security system located in New Jersey, was implicated in a fraud scandal that occurred in 2002. The main issues regarding this fraud included asset misappropriation by top executives and overstatement of income.The AAER related to Tyco is located on the SEC website.Satyam Computer ServicesThe chairman of Satyam, an Indian software outsourcing company, admitted to committing fraud in 2009. The main issues regarding this fraud include overstatement of revenue and cash and falsification of documents.The AAER related to Satyam Computer Services is located on the SEC website.AgFeed Industries, Inc.AgFeed Industries, Inc. is a Tennessee animal feed company. In 2014, the SEC alleged that the company had overstated revenues by $239 million in its Chinese operations. The main issues regarding this fraud included overstatement of revenues and meeting stock analysts’ expectations.A complaint issued by the SEC against AgFeed Industries is located on the SEC website.

Specifically, the following critical elements must be addressed:

IntroductionWhat are the elements of fraud and the importance of studying fraud? How does knowledge of fraud benefit stakeholders beyond the accounting department?What are the different theories of crime causations? How does the identification of the cause of the fraud assist the investigator in determining the perpetrator and the extent of the crime? Provide specific examples that link crime causation to the perpetrator and the crime.Use the fraud triangle to discuss red flags of evidence of pressure, opportunity, and rationalization typically present when fraud occurs. Be sure to link each red flag to a specific area of the fraud triangle.Describe the regulatory and legal factors that impact the prevention and/or detection of fraud.Explain the recent developments that impact the accounting industry and specifically the fraud investigation. Consider linking previous cases of fraud to changes in the fraud investigation.Business Environment and the IndustryWhat are the industry-specific challenges, such as specialization, competition, or growth, this organization is faced with? How do these challenges relate to the company’s business environment?Based on the case study, what behaviors did employees exhibit that were indicative of fraud? Describe the pressures employees faced from management that might have led to the fraud. How could they have been avoided?Assess the strengths of the organization’s internal controls. Where are the weaknesses and how might these lead to fraud?How could you address these weaknesses in order to improve them? What measures could you take to ensure this would improve the weaknesses?What sorts of anomalies were contained within the financial statements or additional financial analysis? How do these anomalies relate to the potential fraudulent activity?Hypothesis DevelopmentWhat frauds could occur in the environment you researched? How are these related to the specific company, the industry, and the economic conditions as a whole?Of all of the employees mentioned, who would have incentives or opportunities to commit fraud? Why?Which of the employees who had the incentive or opportunity to commit fraud is in a position to cause the financial anomalies found? Explain why.Investigation PlanningDescribe the process of how could you investigate the potential fraud and the appropriate steps to complete the process.What documents might you need? Who might you need to speak with regarding the fraud? Support your responses.Illustrate how regulatory issues such as Sarbanes–Oxley or SAS No. 99 would impact the investigation.What other fraud risk inquiries are needed to investigate the suspected fraud? What steps would need to be taken to address these risk inquiries?Report to ManagementTo whom do you need to address your findings? Why are these appropriate parties?What are your recommendations to improve internal controls to reduce the likelihood of fraud? Be sure to support your recommendations.Determine which theory of crime causation is present in the fraud you identified. How is this theory of crime causation directly related to this fraud and how could it have been prevented?What legal or regulatory issues were related to your findings? How will these impact all parties involved?What suggestions do you have for management to prevent this fraud from occurring in the future? What evidence could you present to prove your suggestions would be effective?

Milestones

Milestone One: Introduction (Section I)In Module Three, you will submit an introduction to fraud as it applies to your case study analysis. Consider the elements of fraud, the theories of crime causation, red flags of evidence based on the elements of the fraud triangle, regulatory and legal factors in preventing and/or detecting fraud, and developments in the accounting industry that impact the fraud investigation. This milestone will be graded with the Milestone One Rubric.Milestone Two: Business Environment and the Industry (Section II)In Module Five, you will submit an analysis of the business environment and the industry for your chosen company. Consider the industry-specific challenges, behaviors indicative of fraud, and internal control structure and perform a financial statement analysis for your company. This milestone will be graded with the Milestone Two Rubric.Milestone Three: Hypothesis Development and Investigation Planning (Section III & Section IV)In Module Seven, you will submit your hypothesis development and investigation plan for your company. Consider potential frauds and perpetrators in your company, how the fraud could be investigated, regulatory issues, and any other fraud risk inquires required. Once you have developed your fraud hypothesis, propose an investigation plan. Describe the process of how you would investigate the potential fraud and all of the factors that must be considered for carrying out the investigation. This milestone will be graded with the Milestone Three Rubric.Final Submission: Case Study Analysis and Report for ManagementIn Module Nine, you will submit the case study analysis and report for management of your company. The final submission should contain all of the critical elements of the final project. For this submission, you will develop Section V and combine it with Sections I through IV, revised to incorporate feedback gained throughout the course. This submission will be graded with the Final Product Rubric (below).