(cid:2) TrimSize:6inx9in Beecken ffirs.tex V1-03/17/2017 5:24pm Pagei Fraud Examination Casebook with Documents (cid:2) (cid:2) (cid:2) (cid:2) TrimSize:6inx9in Beecken ffirs.tex V1-03/17/2017 5:24pm Pageii Founded in 1807, John Wiley & Sons is the oldest independent publishing company in the United States. With offices in North America, Europe, Asia, andAustralia,Wileyisgloballycommittedtodevelopingandmarketingprint and electronic products and services for our customers’ professional and personalknowledgeandunderstanding. TheWileyCorporateF&Aseriesprovidesinformation,tools,andinsightsto corporateprofessionalsresponsibleforissuesaffectingtheprofitabilityoftheir company,fromaccountingandfinancetointernalcontrolsandperformance management. (cid:2) (cid:2) (cid:2) (cid:2) TrimSize:6inx9in Beecken ffirs.tex V1-03/17/2017 5:24pm Pageiii Fraud Examination Casebook with Documents A Hands-on Approach WILLIAM H. BEECKEN, CFE, CPA (cid:2) (cid:2) CLARK A. 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LibraryofCongressCataloging-in-PublicationDataisavailable: ISBN9781119349990(Hardcover) ISBN9781119349952(epdf) ISBN9781119349877(epub) CoverDesign:Wiley CoverImage:©Nomad_Soul/Shutterstock PrintedintheUnitedStatesofAmerica 10 9 8 7 6 5 4 3 2 1 (cid:2) (cid:2) TrimSize:6inx9in Beecken ftoc.tex V1-03/20/2017 7:00pm Pagev Contents Foreword ix Preface xi OverviewoftheSerialFraudCases(AFamily ofFraudsters) 1 FraudulentFinancialStatements 2 CheckFraud,DebitCardFraud,CashLarceny 2 FraudulentEdits/AdjustingJournalEntriestoCash Receipts 3 (cid:2) ExcelPivotAnalyzesandSummarizesaHugeAmountof (cid:2) Data 3 TracingExcelPivotRedFlagsBacktoSourceDocuments andDocumentingtheFlowofMoney 3 Chapter1:Case1:FraudulentFinancialStatements 5 1-1 LarsenConvenienceStore:UsingAnalyticalProceduresin DetectingFinancialStatementFraud 5 1-2 HowtoPerformaHorizontal,Vertical,andRatioAnalysis 13 1-3 Exercises—FraudulentFinancialStatements(Larsen ConvenienceStore) 19 1-4 ExerciseTemplates 22 1-5 ReviewQuestions—FraudulentFinancialStatements (LarsenConvenienceStore) 26 Chapter2:Case2:CheckFraud,DebitCardFraud, CashLarceny 29 2-1 AndersonInternalMedicine:PreparingaBank ReconciliationandSpreading/AnalyzingTransactionson MonthlyStatementsfromFinancialInstitutions 29 2-2 HowtoPerformaBankReconciliation 35 v (cid:2) (cid:2) TrimSize:6inx9in Beecken ftoc.tex V1-03/20/2017 7:00pm Pagevi ◾ vi Contents 2-3 HowtoReadChecksandDecodeDebitCardTransactions 38 2-4 HowtoSpreadandAnalyzeCheckandDebitCard Transactions 41 2-5 Exercises—CheckFraud,DebitCardFraud,andCash Larceny(AndersonInternalMedicine) 45 2-6 ExerciseTemplates 48 2-7 ReviewQuestions—CheckFraud,DebitCardFraud, andCashLarceny(AndersonInternalMedicine) 50 Chapter3:Case3:FraudulentEdits/Adjusting JournalEntries 53 3-1 AndersonInternalMedicine(Edits/AJEs):Vouchingfroma ScheduletoSourceDocuments 53 3-2 HowtoVouch/TracebetweenaSourceDocumentandan AccountingLedger,Journal,orActivityLog 56 3-3 Exercise—FraudulentEdits(orAJEs)(AndersonInternal Medicine) 57 3-4 ExerciseTemplate 58 Chapter4:Case4:UsingDataAnalytics:Analyzing (cid:2) andSummarizingDatawithExcelPivot 61 (cid:2) 4-1 AndersonInternalMedicine(DataAnalytics):UsingData Analytics—AnalyzingandSummarizingDatawithExcel Pivot 61 4-2 HowtoUseExcelPivottoAnalyzeandSummarizeData 65 4-3 Exercises—UsingDataAnalytics(AndersonInternal Medicine) 77 4-4 ReviewQuestions—UsingDataAnalytics(Anderson InternalMedicine) 81 Chapter5:Case5:TracingDataAnalyticsRedFlagsBack toSourceDocumentsUsingSubpoenas 85 5-1 AndersonInternalMedicineandLarsenConvenienceStore (ConspiracyandLoanFraud):TraceTransactions DiscoveredduringDataAnalyticsBacktoSource DocumentsUsingSubpoenas 85 5-2 HowtoWriteWordingtoSubpoenaDocuments, Information,and/orObjects 89 5-3 Exercise—AndersonInternalMedicineandLarsen ConvenienceStore(ConspiracyandLoanFraud) 91 (cid:2) (cid:2) TrimSize:6inx9in Beecken ftoc.tex V1-03/20/2017 7:00pm Pagevii ◾ Contents vii Chapter6:Reports,Schedules,andAudiovisuals 93 6-1 WritingaFraudExaminationReport 93 6-2 FormattingSchedulesforInclusionwithReports 100 6-3 HowtoSimplifytheComplexwithAudiovisuals 104 Chapter7:Documents 115 7-1 Case1:FraudulentFinancialStatements(Larsen ConvenienceStore) 115 RecordedInterviewonJanuary2,2016—GregoryLarsen 115 AuthorizationforReleaseofFinancialRecords 117 SwornStatementinProofofLoss 118 2013IRSIndividualTaxReturns(SchedulesC) 121 2014IRSIndividualTaxReturns(SchedulesC) 127 2015IRSIndividualTaxReturns(SchedulesC) 133 2014SBAPersonalFinancialStatements 138 2015SBAPersonalFinancialStatements 141 2016SBAPersonalFinancialStatements 144 Transcripts—2015SalesandUseTaxesper FormST-3 147 (cid:2) (cid:2) ShamrockGroceries2015PurchasesbyMonth 148 Georgia-TennesseeFuelPartners2015Purchases byMonth 149 MariettaBeverageCompany2015Purchases byMonth 150 DiscountTobaccoSupply2015PurchasesbyMonth 151 JenkinsMediaServices2015PurchasesbyMonth 152 10-30-15PhysicalInventory 153 7-2 Case2:CheckFraud,DebitCardFraud,CashLarceny (AndersonInternalMedicine) 155 BankReconciliation—April1,2016—TonyaLarsen 155 BankStatement—March2016 156 CanceledChecks(Front&Back) 158 DepositTickets—March2016 168 CashReceiptsJournal—March2016 173 CashDisbursementsJournal—March2016 176 7-3 Case3:FraudulentEdits/AdjustingJournalEntries [AndersonInternalMedicine(Edits/AJEs)] 179 ReportofInterview—JenniferAnderson,MD 179 DataExtraction203—TonyaEdits 181 Deposittickets—JanuarythroughMarch2016 184 (cid:2) (cid:2) TrimSize:6inx9in Beecken ftoc.tex V1-03/20/2017 7:00pm Pageviii ◾ viii Contents 7-4 Case4:UsingDataAnalytics:AnalyzingandSummarizing DatawithExcelPivot[AndersonInternalMedicine (ExcelPivot)] 194 ExcelSpreadsheet—AndersonBankTransactions (SepOctNovDecJanFeb) 194 7-5 Case5:TracingDataAnalyticsRedFlagsBacktoSource DocumentsUsingSubpoenas[AndersonInternalMedicine andLarsenConvenience(Husband/WifeLoanFraudand Conspiracy)] 210 ReportofInterview—JohnGrayson 210 CreditApplication—WaleskaBank 211 WaleskaBankStatementforGregLarsen—December 2015 213 FrontofOfficialChecks—LoanNo.15-3989 215 BackofOfficialChecks—LoanNo.16-3989 216 FrontofChecksforAccount7011176(GregLarsen) 217 BackofChecksforAccount7011176(GregLarsen) 218 SampleU.S.CourtSubpoenatoProduceDocuments, Information,orObjectsortoPermitInspectionof PremisesinaCivilAction 221 (cid:2) SampleU.S.CourtSubpoenatoProduceDocuments, (cid:2) Information,orObjectsinaCriminalCase 223 SampleU.S.CourtSubpoenatoTestifyBeforea GrandJury 225 SampleU.S.CourtSubpoenatoTestifyataDeposition inaCriminalCase 227 SampleU.S.CourtSubpoenatoTestifyataHearingor TrialinaCriminalCase 229 AbouttheAuthors 231 AbouttheWebsite 233 Index 235 (cid:2) (cid:2) TrimSize:6inx9in Beecken fbetw.tex V1-03/17/2017 5:24pm Pageix Foreword I am pleased to write this foreword to the Fraud Examination Casebook with Documents: A Hands-on Approach by William H. Beecken and Clark A. Beecken, a redoubtable father-son team of forensic accountants. Bill has beenaseasonedforensicprofessionalemployedmanyyearswiththeFederal DepositInsuranceCorporation(FDIC)OfficeofInspectorGeneral,aswellasthe BureauofAlcohol,Tobacco,FirearmsandExplosives(ATF).Clarkiscurrently workingasaforensicauditorforthefederalgovernment. Severalyearsago,asa facultymemberinthe SchoolofAccountancyat Kennesaw State University (KSU), I came to know Bill as a popular faculty (cid:2) member at Southern Polytechnic State University—now the KSU Marietta (cid:2) campus—whotaughtforensicaccountinginaninnovativeway.Attheendof hiscourse,itwaspartofthestudents’end-of-termassignmenttogothrough thereal-worldexperienceofbeingdeposedasan“expertwitness”bythelocal districtattorneyandoverseenbyajudgeintheactualenvironsoftheMarietta, Georgia, courthouse. A couple of times, I was a member of the audience in thecourthouse,ratherenviousofBill’sstudentswhowerebeingexposedtoa mock-trialscenario.Hence,IenthusiasticallycommendandrecommendBill’s idiosyncraticinterpretationofahands-onapproach! Frommyveryfirstmeeting,Clarkappearedtobeachipofftheoldblock,cut ofthesamecloth,theapplethatdoesn’tfallfarfromthetree,etc.—sharp,inci- sive,andblessedwiththetechnologicaladeptnessandadroitnessthatcomes withhavinggrownupdigital.So,Iamnotsurprisedthathehaslefthisindeli- blemarkonthebookbyfocusingonMicrosoftExcel,theindustrystandardfor spreadsheets,featuringcalculation,graphingtools,pivottables,andsuch. Among other things, this practical fraud casebook does a wonderful job of showing how Excel PivotTables may be profitably deployed—not only to summarizeahugeamountofdatabutalsotohelptraceExcelPivotredflags back to source documents to understand the flow of money. After all, much offorensicaccountingcanbeusefullydescribedastheworkofunderstanding ix (cid:2) (cid:2) TrimSize:6inx9in Beecken fbetw.tex V1-03/17/2017 5:24pm Pagex ◾ x Foreword and investigating people, money, and associated patterns of behavior with great tenacity—colloquially described as the “follow the money” approach. Suchworkcannotbecarriedoutwithoutsophisticateddataanalysisintoday’s datarich,informationpoor(DRIP)world. Itisonethingtoappreciatethescopeandreachofforensicaccountingat aconceptuallevel;quiteanothertogetyourhandsdirtywithdata,andrec- ognize the power of data-driven insights and solutions. This book admirably makesthatbridgefromtheorytopracticehappen.Ratherthan“handwaving,” youbecomehands-on—youdon’tjusttalk,fortalkischeap,butyouactually perform analyses and learn to manipulate data statistically to yield relevant andmeaningfulinformation.Thisinformationhelpsyougatherevidenceand arriveatinferencesthatsupportorchallengeyourhypotheses—amostexcit- ingendeavor.Afterall,itissuchinformationthatcangreatlyhelpbuttressone’s arguments,defendone’sposition,persuadeothersincourtroomcontexts,and thus,helpwincases. Dr.SridharRamamoorti,ACA,CPA/CITP/CFF/CGMA,CIA,CFSA, CGAP,CRMA,CFE,CGFM,CRP,MAFF (cid:2) (cid:2) AssociateProfessorofAccounting,SchoolofBusinessAdministration, UniversityofDayton,Ohio ManagingPrincipal,TheBehavioralForensicsGroup,LLC (www.bringingfreudtofraud.com) MEMBERSHIPS Standing Advisory Group, Public Company Accounting Oversight Board, 2014–2016 ForensicAccountingAdvisoryBoard,GeorgiaSouthernUniversity,2015– BoardofTrustees,FinancialExecutivesResearchFoundation,2016– Litigation Forensics Board, National Association of Certified Valuators & Analysts,2016– Leadauthor,A.B.C.’sofBehavioralForensics(Hoboken,NJ:JohnWiley&Sons, 2013) (cid:2)