ABSTRACT: Based on the facts of an actual fraud investigation and utilizing dialog to creatively present materials that will hold the student’s interest, this case introduces students to financial statement fraud and highlights the internal controls of inventory and sales for a private business. It provides students the opportunity to complete financial statement analysis relating to gross margins, and students are asked to identify weaknesses in the company’s internal control system. Students are also asked to make recommendations for improvement in the form of a written memo. The case is simple but can be used to introduce the concept of fraud investigation and can stimulate lively classroom discussion concerning student perceptions of whether fraud is, in fact, taking place. It can be used with either introductory-level financial accounting classes or more highly developed accounting courses such as auditing or fraud examination.
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1 February 2011
