Question

The Fraud Triangle has 3 main factors that contribute to fraudulent activity. Identify those 3 factors and write about how they specifically related to Jenifer and her embezzlement.

Fraud Factor
How did this contribute to Jenifer’s embezzlement?
1.
2.
3.
There are six principles of internal control activities. List those six principles and include one example of all the specific internal controls that could have been in place to prevent this embezzlement.
Internal Control Principle
Specific process to prevent this embezzlement
1
2.
3.
4.
5.
6.
How difficult do you think it would be to implement the principles identified in Question 2 at a small business? Why? Support your position.
J Murray and Company, LLC paid a CPA firm to prepare reviewed financial statements and tax returns. They used information from Peachtree records and from Jenifer. What responsibility, if any, did they have? Did they act unethically? Who is responsible for accurate accounting records?
What does Tina mean in her statement to the Clare County Review "the effects of an embezzlement are far reaching and detrimental for everyone"? Who were all the stakeholders that were all affected in this case? How were they harmed?
Jenifer was caught embezzling via the payroll system, how else might she have been stealing from the company that was never proven?
Why do you think Jenifer embezzled the money?
Do you think her sentencing is too lenient, too harsh, or is appropriate? Why?

Answer 1

The Fraud Triangle in relation to Jenifer's embezzlement and the six principles of internal control activities that could have prevented it. The difficulty of implementing these principles in a small business. The responsibility of the CPA firm and the stakeholders affected by the embezzlement.

Fraud Triangle Factors and Jenifer's Embezzlement:

1. Pressure: - Contribution to Jenifer’s Embezzlement: Jenifer's long-term psychiatric treatment suggests she faced significant internal pressures. The anxiety she experienced may have driven her to seek financial relief through embezzlement.

2. Opportunity: - Contribution to Jenifer’s Embezzlement: With Julie's illness, Jenifer gained increased responsibility and trust, providing her with ample opportunities to manipulate financial records and embezzle funds without detection.

3. Rationalization: - Contribution to Jenifer’s Embezzlement: Jenifer rationalized her actions by convincing herself that embezzling was necessary to provide her family with the lifestyle she deemed deserved. This rationalization likely served as a justification for her fraudulent activities.

Six Principles of Internal Control Activities and Prevention Measures:

1. Establish Responsibility: - Specific Process to Prevent Embezzlement: Assign specific duties to different employees to create a system of checks and balances. For example, separate the tasks of financial record keeping and financial approvals.

2. Segregate Duties: - Specific Process to Prevent Embezzlement: Implement a system where no single employee has control over all aspects of a financial transaction. For instance, separate the roles of recording transactions and authorizing payments.

3. Restrict Access: - Specific Process to Prevent Embezzlement: Limit access to financial systems and records to only authorized personnel. Use passwords and access controls to ensure restricted access.

4. Perform Regular Reviews: - Specific Process to Prevent Embezzlement: Conduct regular internal and external audits to review financial transactions and identify any irregularities.

5. Document Procedures: - Specific Process to Prevent Embezzlement: Clearly document and communicate financial procedures to all employees involved in financial activities. This ensures transparency and accountability.

6. Conduct Employee Background Checks: - Specific Process to Prevent Embezzlement: Before hiring, conduct thorough background checks, especially for positions involving financial responsibilities, to identify any previous fraudulent activities.

Difficulty of Implementing Principles in a Small Business:

Implementing these principles in a small business may be challenging due to limited resources and a smaller workforce. Small businesses may struggle to segregate duties adequately and conduct regular reviews without affecting operational efficiency.

Responsibility of CPA Firm and Accurate Accounting Records:

The CPA firm has a responsibility to ensure the accuracy of financial statements and tax returns. If they relied solely on information provided by Jenifer without proper verification, they might be considered negligent. Ethical responsibility includes validating information from multiple sources to ensure accuracy.

Tina's Statement and Stakeholders:

Tina likely refers to the broader impact of embezzlement on various stakeholders, including employees, investors, and creditors. Stakeholders were harmed as the embezzlement could lead to financial losses, damage to reputation, and potentially job insecurity for employees.

Unproven Methods of Stealing:

Jenifer might have been stealing through methods such as manipulating invoices, creating fictitious vendors, or diverting cash transactions. Without thorough investigation, these methods may remain undetected.

Motivation for Embezzlement:

Jenifer's motivation appears to be the desire to provide her family with a perceived deserved standard of living, driven by financial pressures and personal rationalizations.

Sentencing Opinion:

The appropriateness of Jenifer's sentencing depends on legal considerations, the extent of financial harm, and factors like remorse and cooperation. Without specific details, it's challenging to determine the adequacy of the sentencing.

Answer 2

Jennifer's embezzlement can be attributed to a combination of factors.

• The internal pressure made it increasingly difficult for her to resist the temptation to embezzle.
• This dependence and trust granted Jennifer more access and control which facilitated her embezzlement.
• She rationalized her actions by convincing herself that embezzling was necessary to fulfill her perception of her family's deserved standard of living.

Fraud refers to the deception that is intentional and caused by an employee or organization for personal gain. The fraud triangle consists of three components which are Opportunity, Incentive and Rationalization.

The way these factors contribute to Jenifer’s embezzlement are as follows:

Pressure:

Jenifer had been undergoing psychiatric treatment for a long time due to the anxiety of committing the embezzlement, and yet she continued to embezzle.

Opportunity:

After Julie became sick, Kim depended on Jenifer to keep the business running which gave Jenifer dependence and trust which led to more opportunity.

Rationalization:

Jenifer’s priority became helping her family to live the life that she believed they deserved