Assignment:
Using the Case Study shown below, prepare a report for Bart and Lou, and answer the following questions, making reference to Cressey's Fraud Triangle where applicable:
1. From this case identify what pressure might have motivated Sam to commit fraud.
2. What opportunities might have allowed Sam to commit fraud?
3. How do you think Sam rationalised his fraudulent activities?
4. Fully explain why internal controls are necessary in the fight against fraud and describe the main internal controls that could have reduced the opportunity for fraud in this case study.
5. You are employed as the Forensic Accountant by Bart and Lou, explain the plan you would undertake before commencing the investigation.
6. Identify and explain which documents you think can help disclose Sam's fraudulent activities?
7. Explain and give reasons whether you would interview Sam.
Report Format Presentation.
Case Study
Bar Lou's Brasserie is a family-owned restaurant in Mumbles. The owners have seen a decrease in profits over the past three years and are very concerned so need to investigate this change. Bar Lou has been a firm local favourite since two brothers opened it in 2001. The restaurant, due to demand and reputation, became so popular that the brothers were unable to manage just between the two of them so employed a manager to help manage the day-to-day activities of the restaurant
Due to the newly employed manager doing such a good job, the brothers gradually became less and less involved in management duties. In 2016 the manager retired and Bart and Lou realised that they need to employ someone new to take over the management duties. Ben Jones, a trusted friend of the brothers and, who had been employed by Bar Lou's for over 10 years ( as a senior waiter), suggested speaking to Sam Lewis the manager of a nearby restaurant Stone which had recently closed due to lack of business (Stone had been in business for over 30 years ).
Bart and Lou were interested and set up a meeting the following week with Sam. Following the meeting and hearing his relevant work experience, they employed him but at a lower salary.
Sam accepted the position as he was heavily in debt due to having a secret gambling addiction. As Sam's gambling expenses increased, he could not meet his debts. This was causing marital pressure as his wife was unable to work due her commitments as a carer for her elderly parents. Sam was also upset that the success of Bart Lou had caused the loss of his previous position.
After a month in his new job Sam started to steal small amounts of cash from the till. At first Sam intended to "borrow" the money but he soon became frustrated and increasingly annoyed at receiving a lower salary than his previous position for the same responsibilities. In his position of managing the business, his signing authority enabled him to approve personal expenditures and write cheques to himself. He submitted mileage expenses while using a car leased to him and used the company credit card to pay for petrol for personal use. Other bills submitted and approved by himself were for family meals and repairs to his personal car. During his time at Bart Lou's, Sam continued to falsify records and steal cash from his employers. Sam was also living the good life with an expensive house and a sports car.
Neither Bart not Lou were interested in change and, despite technology being introduced in other restaurants, they had remained without a computer system for customer orders. Customer orders were written on a writing pad with a duplicate carbon - one copy taken to the kitchen, and the other copy given to the customer to take with them to pay at an old cash register at the exit to the restaurant. Once orders were paid for, the receipt was placed on a metal holder with all the other receipts. At the end of the day, receipts were totalled by Sam in order to determine total sales.
Bart and Lou were aware that profits had declined over the past three years and had assumed it was due to increased restaurant competition. However, they were made aware, by their book-keeper, that the revenue of the business had increased but profits had not. They raised their concerns with Sam as he was the manager.
When Sam was asked about the change in relationships between revenues and profits, he replied that it was due to the large increase in food costs and also because he had increased the employees' wages. Sam's responsibilities also included preparing the nightly deposits, managing the account payables, dealing with payroll and preparing the bank reconciliations. There had never previously been a need for either brother to check his work as Sam had quickly become a trusted employee due to his previous work experience and, as such, they had seen no reason to question his explanations regarding the drop in profits.
However, the brothers were not satisfied with the current explanations so carried out an internal investigation where Sam's fraudulent activities were discovered. On their findings they decide to hire a forensic accountant to fully investigate the level of fraud.