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Mountain State Sporting Goods
(Fraud Investigation Phases I-III.)
The Mountain State Sporting Goods is an example of a corporate fraud investigation. The chapter consists of a discussion of the phases of a fraud investigation. Your assignment is to write a memo describing your findings after performing the Phases in conducting such a fraud investigation.
Phases I-III are as follows:
Phase I: a) identify red flags for fraud and b) develop a fraud hypothesis
Phase II: test hypothesis via a) financial statement analysis and b) journal entry testing
Phase III: refine and confirm hypothesis via interviews
A copy of your written responses should be handed in at the beginning of class. Your responses do not need to be entered into Blackboard.
Some helpful hints (hopefully)
1) As you will see this assignment builds off the analysis we did previously , however it is more complex so you will need to keep calm as you try to work through the Phases.
2) Phase I is straightforward and think of the kinds of red flags we have talked about in previous classes including internal controls or lack thereof.
3) Phase II will require financial statement analysis similar to what we have done. There is no cash flow statement so you will need to compile one.
4) For the journal entry testing you may have some difficulty if you have not had much training with journal entries. If so try your best and if you are stumped we will go over this in detail in class.
5) For the interviews you will look at as part of Phase III you should list the information from the interviews that helps support your previous findings. For instance there is a lot of information in the interviews about the pawn shop and accounting for pawn shop activities. If you had not previously considered the pawn shop activities as a problem area ( red flag), you may want to go back and look closer at the pawn shop activity.
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