Case scenario:
While performing an audit of CCC Corporation, the audit team noticed something that didn't look right. The company's receivables aging report showed that bank loan receivables were approximately $91 million. That audit team calculated the bank loan edible receivables to be approximately $50 million. The client didn't identify specific accounts in witting off bad debts, there was extremely slow credit memo processing, and items the management had not focused on remained uncollectable and ineligible for financing. In addition, over the last two years, the company's credit department has had unusually high turnover--four different people had held the credit manager position under an intimidating CFO. The current credit manager was a friend of the CFO and had worked with him at a previous company. After looking at some invoices and asking about customer information to confirm, the credit manager admitted to creating false documents and arranging fictitious sales with client--all with the knowledge of the CFO.
Question 1. What are some of the red flags that point to the possibility of fraud? Elaborate.
Question 2. What would you say the main problem in this cast that allowed the fraud to occur? Elaborate.