Forensic Auditing Assignment \(^.^)/

Credit: Google

Forensic Auditing is one of my favourites subjects for this semester. Actually, this subject isn't compulsory subject, it is included in elective course that i can choose to be taken or not. Then, 2 weeks ago, I got assignment from this class. My lecturer gave the class a case that we should answer and discuss in the report. Then the report will be submit in the next meeting (next week). So, tonight, I'm going to share to you about that assignment. If you guys like something that related with fraud and how to identify it, then this post gonna be suitable for you :D

PLUTONIUM’S CASE

Plutonium was an internet startup company founded in 1998 at the beginning of the technology boom. One of the largest problems for Plutonium was developing the technological systems necessary to support the rapidly expanding user base. Furthermore, due to the rapid expansion in the recent years, many of their systems had been added hastily, resulting in poor integration and eroding data integrity. As a result, the CEO of Plutonium announced an initiative to integrate all systems and increase the quality of internal data. In compliance with this initiative, Plutonium purchased an expensive and complex billing system called Gateway, which would automate the billing for thousands of internet accounts via credit cards. During the integration, Gateway in collaboration with Visa created a phony credit card number that could be used by developers and programmers to test the functionality and integration of the Gateway system. Moreover, this credit card number was fully functional in “live” environments; so that testers and developers could ensure functionality without being required to use actual personal or company credit numbers (the activity on this card was not monitored). The integration went smoothly; however, it created thousands of corrupt accounts that required fixing.

Jonathan, the manager of the Operations department, was responsible for the resolution of all data integrity issues. His team was asked with fixing all corrupt accounts created by the launch and integration of the Gateway system. As a result, Jonathan was given the phony credit card number which was kept on a Post-it note in his drawer.

One of the top performers on the Operations team was a 29 year-old male named Chris. Chris had worked in Operations for over a year and was making $20 per hour, the same salary at which he was hired. He was an introvert working to support a family and put himself through school. Chris was the most technologically savvy individual on the team and his overall systems knowledge even exceeded that of his manager, Jonathan. Chris was very brilliant in creating more efficient tools and methods to repair corrupted accounts. Therefore, Chris was tasked with conducting training for new employees and updating team members on new processes and tools that he had created. As a result, Chris quickly became a trusted and valuable team member; thus, Jonathan gave him and other team members the phony credit card number in order to further increase the productivity of the team.

However, after six months of working at Plutonium, Chris received an official reprimand from the company for using the company system to access websites containing pirated software and music. The federal police attended the investigation and determined that Chris had not been a major player in the piracy. Therefore, Chris was quietly warned and placed on a short-term probation. Jonathan was asked to write a warning letter for the action; however, after a brief conversation with Chris, Jonathan determined that Chris intentions were good and never officially submitted the letter because Chris was a trusted employee and elevated the overall performances of the team. A few months after the piracy incident, Jonathan noticed some changes in Chris’ behavior such as: a) his computer was repositioned so that his screen was not visible to other workers, b) he had almost all the latest technological innovations (new Palm Pilot, MP3 Player, Play Station, new laptop, and new car stereo system), c) he was going out to lunch more frequently, and d) he had multiple fake usernames and passwords that he frequently used for testing purposes.

Requirements:

1. Evaluate this case using the three elements of the fraud triangle identify:
a.) Potential pressures for Chris to commit fraud
b.) Potential opportunities for Chris to commit fraud
c.) Potential rationalizations that Chris could use to justify his actions

2. What are some of the symptoms that fraud could exist?

3. What could Jonathan have done to eliminate some of the opportunities for fraud?

Discussion

1. Evaluating the case using the three elements of the fraud triangle identify: 
a.) Potential pressure for Chris to commit fraud is financial need. I can conclude that from the case story above, it was mentioned that Chris is working to support his family and put himself through school. We know that being a single fighter to support the whole family members are not an easy job, while he also should pay his tuition fee to keep himself stayed in school. Then, according to me, financial need is the most possibility pressure for Chris to commit the fraud.

b.) Potential opportunities for Chris to commit fraud are Chris had worked in operations for over a year, and then he also the most technologically savvy individual on the team and his overall systems knowledge even exceeded Jonathan as the manager. Besides that, Chris also trusted and valuable team member to create tools and methods in order to increase the productivity team. Those points has been enough as potential opportunities for Chris to commit fraud since Chris is the one who given authority from Jonathan as the manager to create tools and methods itself, then it means that Chris understand the environment or the internal control and how the systems and tools works, so it give him opportunity to cheat and break the system without being detected or found out. Being trusted by his manager (Jonathan) is also become opportunity for Chris to commit a fraud because in his manager’s mind, Chris is kind of honest and loyal employee then whatever he did is for the company’s sake, so Jonathan will never suspicious him because he believe that Chris is a trusted and valuable employee that never cheat on company. Another opportunity for Chris was given the phony credit card number by Jonathan which the activity on this card was not monitored, that give another opportunity for Chris to commit fraud.

c.) Potential rationalization that Chris could use to justify his actions is his low salary $20 per hour, the same salary at which he was hired. That must be hard for Chris since he has to support his family and put himself through school with that amount salary. He is kind of brilliant employee that should be more appreciated by increasing his salary. So when his company did not give him enough salary to support his life, he needs to find another way to get more money.

2. Some of the symptoms that fraud could exist are official reprimand from the company for Chris related the using of company system to access websites containing pirated software and music; changes in Chris’ behavior that repositioned his computer monitor so that his screen was not visible to other co-workers, it looked like Chris trying to hide his activities on computer; Chris’ bought the latest technological innovations (new Palm Pilot, MP3 Player, Play Station, new laptop, and new car stereo system) that need much cash which is looked quiet impossible since Chris had not bonus or big salary from the company; Chris was going out lunch more frequently that made him looked very busy, out of his daily activities, seemed that he is under secret project; then the last is he had multiple fake user names and passwords that he frequently used for testing purposes, it means that Chris is lately do more tests that maybe not only do test related with the company’s sake but maybe for different purposes.

3. To eliminate some of opportunities for fraud, Jonathan could have done:

a. Consider the official reprimand from the company related with the piracy software and music that done by Chris, or at least do more inspection about that case. 

b. Not trusted his employees for 100%. Trusting the employees is good, but too easy to trust the employees and did not monitor or take control with their actions are such a bad management. 

c. Giving bonus or increase the employee salary, consider the skill and loyalty of his employees to the company to increase their salary. 

d. Do rolling position for the employees so an employee will not be in same position for the long time.