Homework | Accounting homework help

 

 Auditing Theory Class

Instructions

SOUTHEASTERN FEDERAL SAVINGS & LOANS
Background

This case study presents a fraud perpetrated by a mortgage counselor at a branch office of Southeastern Federal Savings & Loans (Southeastern) that resulted in Southeastern losing $110,000 in cash outright and $93,149 in staff time investigating the fraud. The senior management of Southeastern, the FBI, and the firm’s attorneys incurred additional costs.

This fraud occurred because established policies and procedures were not followed and that additional controls needed to be implemented.

Description of the Fraud and the Parties

Jane Davenport, the perpetrator of the fraud, was initially hired as a teller, became a savings counselor, and lastly, a mortgage counselor.  In her five years of employment at Southeastern, fellow employees and customers trusted her.  Ms. Davenport violated their trust by stealing from customers’ accounts. Ms. Davenport started the fraud when she took money from an older couple’s two accounts by forging signatures on withdrawal slips. She repaid the money to the accounts by taking money from other customers’ accounts in a classic lapping scheme.

The following year, Ms. Davenport targeted a customer, Ms. Sampson, who had seventeen accounts with Southeastern.  Ms. Sampson was a very busy lady, her accounts were very disorganized, and her signature varied considerably.  Ms. Davenport and Ms. Sampson developed a trusting relationship.  For instance, Ms. Sampson would leave signed blank withdrawal tickets and/or call Ms. Davenport in order to transfer money among accounts. Based on this trust, Ms. Davenport closed out three certificates of deposits, taking penalties on two of them and placing the money into her personal account.  Ms. Sampson had two checking accounts with substantial activity and transferred much money between them.  Ms. Sampson made second mortgages to people and earned an excellent return on her loans.  Ms. Davenport processed a change of address for the checking accounts, so that the statements were mailed to her.  She would make a copy of the statements and eliminate the fraudulent transactions.  She inserted the altered balances and calculated the correct interest, typed the correct address, and mailed the altered statement to Ms. Sampson so that she would not detect the fraudulent transactions.  Ms. Sampson suffered a total loss of $45,168.67; all of which were reimbursed by Southeastern.

Other Losses

Ms. Davenport raided other customers’ accounts. One customer suffered a loss of $4,072.09 when Ms. Davenport diverted a check payable to the customers to her own account.  Another customer lost $30,884.62 when Ms. Davenport prematurely closed the customer’s certificate of deposit and fraudulently withdrew money from the customer’s account.  Four additional customers lost $18,134.62, $10,707.00, $1,000.00, and $151.97 respectively.

The Discovery

The fraud was discovered after three years when Ms. Sampson finally complained to the branch manager about problems in her accounts.  The branch manager immediately contacted the security manager and Ms. Davenport was questioned.  Eventually, Ms. Davenport signed a confession stating that she had stolen Ms. Sampson’s money to help her mother with financial problems.  At that time, the Internal Audit Department was asked to investigate the fraud and the record center began the enormous task of gathering the documents for the investigation.

Evidence and Work Papers

Internal audit investigation had the following objectives:

  1. Determine the customers and the amount lost by each to allow Southeast to reimburse customers’ losses.
  2. Identify violations of existing policies and procedures and make recommendations for additional controls that could prevent future frauds from occurring.
  3. Supply the FBI with evidence in the case for them to conduct their own investigation, especially in the cases not considered large enough by FBI standards.

Internal auditors assembled copies of withdrawal tickets, deposit tickets, signature cards, and checks, and placed them in a file for each customer’s accounts.  For each account, the internal auditor matched withdrawals against the copies of the signature cards in order to determine if the withdrawal was a forgery.  When there was a reference to another account, the internal auditors requested from the Record Center information from the other account.  Among many irregularities, it was discovered that Ms. Davenport had signed her own name on withdrawal tickets for other persons’ accounts. 

A summary worksheet was prepared for each account indicating the transactions not performed by the customer or those that appeared questionable.  In many accounts, it was simple to determine if the transactions were legitimate or not, but in some accounts, such as Ms. Sampson’s, it was impossible to make any determination due to the discrepancies in the signatures on signature cards and the large activity of their checking accounts.

The FBI and Internal Auditors Interview Ms. Sampson

In order to resolve the above problem, the security manager arranged to meet with Ms. Sampson, the internal auditors and the FBI, to determine which transactions were made by her.  The volume of transactions was so large that follow-up meetings were scheduled between Ms. Sampson and the internal auditors.  During the follow-up meetings, Ms. Sampson was shown copies of the transactions from her various accounts and she was asked to identify whether she had actually performed them.  A certain level of confidence was established from the information supplied by Ms. Sampson.  As a final verification, the internal auditors compared the transactions in their worksheets to Ms. Sampson’s check register.  The internal auditors prepared a detailed and complete list of fraudulent withdrawals.  Ms. Sampson’s accountant verified the accuracy of the loss as presented on the Internal Auditor’s spreadsheet.

The Conclusion of the Case

The FBI requested the internal auditor’s spreadsheets documenting the total loss suffered by Southeastern customers.  The FBI and U.S. Attorneys used the worksheets to prosecute Ms. Davenport.  The spreadsheets listed 241 fraudulent transactions totaling a $465,303.58.  Ms. Davenport pleaded guilty, was convicted, and sentenced to five years probation, one month in jail, and no restitution.

Required
  1. How would the auditors demonstrate that all the accounts that suffered losses (actual accounts and potential accounts were reviewed?
  2. What information should work papers contain to support a fraud case?
  3. What information should work papers contain to support a regular audit? Compare and contrast the differences in the information needed for a fraud case and a regular audit
  4. How would you review the work papers prepared for this case?
  5. Prepare an audit program that an internal auditor assigned to this case would use?
  6. What changes in internal controls would you recommend after reviewing the facts of the case?

Clearly highlight each question and use bullet points within the question

Semester Papers
Calculate your paper price
Pages (550 words)
Approximate price: -

Why Work with Us

Top Quality and Well-Researched Papers

We always make sure that writers follow all your instructions precisely. You can choose your academic level: high school, college/university or professional, and we will assign a writer who has a respective degree.

Professional and Experienced Academic Writers

We have a team of professional writers with experience in academic and business writing. Many are native speakers and able to perform any task for which you need help.

Free Unlimited Revisions

If you think we missed something, send your order for a free revision. You have 10 days to submit the order for review after you have received the final document. You can do this yourself after logging into your personal account or by contacting our support.

Prompt Delivery and 100% Money-Back-Guarantee

All papers are always delivered on time. In case we need more time to master your paper, we may contact you regarding the deadline extension. In case you cannot provide us with more time, a 100% refund is guaranteed.

Original & Confidential

We use several writing tools checks to ensure that all documents you receive are free from plagiarism. Our editors carefully review all quotations in the text. We also promise maximum confidentiality in all of our services.

24/7 Customer Support

Our support agents are available 24 hours a day 7 days a week and committed to providing you with the best customer experience. Get in touch whenever you need any assistance.

Try it now!

Calculate the price of your order

Total price:
$0.00

How it works?

Follow these simple steps to get your paper done

Place your order

Fill in the order form and provide all details of your assignment.

Proceed with the payment

Choose the payment system that suits you most.

Receive the final file

Once your paper is ready, we will email it to you.

Our Services

No need to work on your paper at night. Sleep tight, we will cover your back. We offer all kinds of writing services.

Essays

Essay Writing Service

No matter what kind of academic paper you need and how urgent you need it, you are welcome to choose your academic level and the type of your paper at an affordable price. We take care of all your paper needs and give a 24/7 customer care support system.

Admissions

Admission Essays & Business Writing Help

An admission essay is an essay or other written statement by a candidate, often a potential student enrolling in a college, university, or graduate school. You can be rest assurred that through our service we will write the best admission essay for you.

Reviews

Editing Support

Our academic writers and editors make the necessary changes to your paper so that it is polished. We also format your document by correctly quoting the sources and creating reference lists in the formats APA, Harvard, MLA, Chicago / Turabian.

Reviews

Revision Support

If you think your paper could be improved, you can request a review. In this case, your paper will be checked by the writer or assigned to an editor. You can use this option as many times as you see fit. This is free because we want you to be completely satisfied with the service offered.