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Why Does It Matter to Your Career?

Thoughts from an External Audit Data Analyst, Public Accounting

Many online resources list various financial fraud data analytics tests you
can use. Reviews that auditors used to perform manually on a sample are
now performed on full populations using analytics. Cutoff analysis,
backdated journal entries, reviews for segregation of duties, and trend

u
analysis for key accounts such as revenue and expenses are some of the

ed
many tests you may encounter if you pursue a career in accounting data
analytics.

u.
When you perform data analytics, it’s important to obtain data from the
source system. Rather than trust a report provided by management, go

ny
directly to the data in the system and request an extract. You can
compare the source data to the financial statements to see if somewhere
n.
along the way management has manipulated the data. You can’t always
trust management, as they are most often responsible for—or at least
er
involved in—financial statement fraud. Use your professional skepticism
and critical-thinking skills to ask questions, dig deeper, and verify results
st

through your own data analysis.

8@
03
l10
jm
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Featured Professional: Fraud Analytics Specialist

u
ed
u.
ny
John Aubrey Pickens, CFE, CISA

n.
John is a risk and compliance professional with over 13 years of experience
identifying, managing, and mitigating risk through compliance and internal
er
audit departments. He earned a bachelor’s degree with a double major in
accounting and management information systems and began his career as an
IT and financial auditor for one of the Big Four firms. John soon realized that
st

he wanted to make a lasting impact from within the companies he was

8@

auditing. Since then, he has led internal audits, helped build compliance and
internal audit functions, and led the risk and control portions of major
software implementations. He has also built fraud detection and anti-fraud
03

programs at multiple Fortune 500 companies. He is now working as a senior

manager in a compliance function and helping revamp compliance
processes with his peers and team. He enjoys spending time with his wife and
l10

daughter, traveling abroad, and, when he can, sneaking away to fish or hike.
What types of fraud risks have you encountered throughout your
jm

career?
I have seen the most fraud risks and cases of fraud around business
processes where employees have fast, easy access to money or something
they can convert to money. Whether it’s buying extra inventory and selling
some of it, abusing corporate cards by expensing inappropriate expenses, or
setting up fictitious vendors, these methods of stealing assets are common. In
my experience, fraudsters tend to get as much as they can while under the
radar so that they can act fast, before they are detected.
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Is there a specific example of fraud you have uncovered that you can
share with us?
I can’t be very specific, but corporate cards, which are used to expense travel
and for corporate purchasing, are often abused in interesting ways and are
frequently involved in frauds, typically involving low dollar amounts. It is very
easy for fraudsters to swipe a card with certain merchant providers and call it
something that seems like a legitimate business expense. They can also use a
corporate card to buy something that does not exist by creating shell
companies. I once caught someone who put their own address as the

u
business address when creating a shell company in the AIS. They ended up

ed
having a long conversation with me.
What data analytics tools do you find most useful for fraud testing?

u.
I believe that to be good at data analytics or data science, you need to be tool
agnostic. Not all data is the same, and not every company uses the same

ny
tools. I have used basic SQL queries and Excel to catch just as much fraud as I
have caught using specialized software. If you don’t enjoy coding, you can use
n.
a number of specialized software options that come with prebuilt scripts that
enable you to start performing fraud data analytics quickly.
er
What recommendations do you have for an accounting major who is
interested in pursuing a career path like yours?
st

Try to get as much exposure as you can to information systems through

8@

classes or real-life experiences. If possible, pursue an internship in this area

and include specific experiences—even those as simple as shadowing
someone—on your resume. It’s important to give yourself the credit you
03

deserve on your resume to set yourself apart when making career changes.
l10

Review and Practice

Key Terms Review
jm

asset misappropriation
behavioral red flag
billing scheme
capitalization of expenses
channel stuffing
corruption
double dipping
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expense cutoff
expense reimbursement scheme
expensing capitalized cost
external fraud
financial statement fraud
fraud
fraud triangle

u
fraudulent disbursement

ed
larceny

u.
management override
misclassification of revenue

ny
non-behavioral red flag
occupational fraud
opportunity
n.
er
pay and return
payroll scheme
st

perceived pressure
8@

rationalization
sales cutoff
03

sham sale
skimming
l10

tone at the top

unauthorized hours
jm

unauthorized shipment
unrecorded revenue
whistleblower

Learning Objectives Review

1 Identify the main types of fraud.

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prosecuted.

Fraud is knowingly misrepresenting the truth or concealing a material fact to

induce another to act to his or her detriment. This definition of fraud has four
elements:
A false statement: The perpetrator either lies directly or hides the truth.
Knowledge: The perpetrator knows the statement is false at the time it’s
stated.
Reliance: The victim relies on the information when deciding or acting.

u
Damages: The victim suffers damages as a result of relying on this false
statement.

ed
Occupational fraud is committed by owners, executives, management, and
employees who use their positions to enrich themselves at the expense of the

u.
company. The ACFE identifies three high-level categories to map all fraud
schemes:

ny
Asset misappropriation
Financial statement fraud n.
Corruption
er
Corruption is the inappropriate use of influence to obtain a benefit contrary to the
perpetrator’s responsibility or the rights of other people. Perpetrators internal to
st

the organization may engage in four possible types of corruption fraud schemes:
8@

Conflicts of interest
Illegal gratuities
Commercial bribery
03

Economic extortion
l10

External fraud is fraud perpetrated against an organization by customers,

vendors, or other outside parties.
Behavioral red flags are clues that indicate the possibility a person may be involved
jm

in a fraud. The presence of red flags does not mean a fraud is being committed.
There are six common behavioral red flags:
Financial difficulties
Living beyond one’s means
Close association with a vendor or customer
Recent divorce or family problems
Control issues or unwillingness to share duties
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Unscrupulous “big shot” attitude

2 Describe the role of an accounting professional in fraud management.

The fraud triangle is a framework that identifies three motivational elements

generally associated with fraud:
Perceived pressure: The motive or incentive that pushes a person toward the
decision to commit a fraud.

u
Opportunity: The element of the fraud triangle that a company can most
influence, which is created when a company has poor or no internal controls,

ed
when there is collusion to circumvent internal controls, or when management
overrides the internal controls.

u.
Rationalization: The attitude of the fraudster that justifies the fraud act in the
fraudster’s mind.

ny
Auditors refer to these three elements of the fraud triangle as “fraud risk factors,”
and they are typically observed after fraud occurs.
n.
Internal controls and an anti-fraud culture at a company can prevent fraud.
er
Collusion circumvents two controls:
Segregation of duties, where one person is not allowed to have conflicting
st

responsibilities
8@

Independent checks, where one person reviews the work of another for
accuracy and objectivity
The tone at the top is the culture of an organization that flows downstream from
03

leadership to impact all functional areas. A culture of zero tolerance for fraud and
unethical behavior is a strong deterrent to fraud.
l10

Companies implement specific controls to detect fraud:

Identifying non-behavioral red flags at a process or entity level
jm

Implementing anonymous whistleblower hotlines so employees can report

observations or provide tips of possible misconduct, concerns about external
financial reporting, or other issues
Using data analytics specifically designed to continuously monitor processes
and systems for fraud trends or anomalies
Conducting independent checks of people’s work
Reviewing adequate documentation that leaves an audit trail
Two types of financial statement analysis can be used to identify red flags that
may indicate financial statement fraud:
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Horizontal analysis involves investigating changes in financial statement items

by comparing two or more financial statements from different periods.
Vertical analysis involves calculating each line item in the same financial
statement as a percentage of another line item in the same financial
statement. Vertical analysis becomes more insightful when used in
conjunction with horizontal analysis. The combination makes it possible to
compare the vertical analysis of one reporting period with others.
Most frauds are detected based on tips from employees and external parties (e.g.,

u
vendors).

ed
3 Explain how to identify, prevent, and detect asset misappropriation
schemes.

u.
Asset misappropriation is the theft of corporate assets including cash, inventory,

ny
fixed assets, and information such as customer lists and intellectual property.
Asset misappropriation can impact a company’s financial statements—specifically
n.
when the perpetrator creates fraudulent journal entries to conceal the theft.
The three major classes or subcategories of asset misappropriation are:
er
Skimming, which happens when an employee steals cash and does not enter
the transaction in the accounting records, leaving no audit trail or
st

documentary evidence of the transaction.

8@

Larceny, which is the theft of company cash and non-cash assets after the
company has recorded the assets in its books. The common types are
unconcealed larceny, where the fraudster does not attempt to conceal the
03

fraud, and fictitious sales larceny, where the fraudster creates falsified
documents or fraudulent journal entries.
l10

Fraudulent disbursements, which occur when an employee causes the

business to make a payment for an inappropriate purpose. Fraudulent
disbursements occur on the books, creating an audit trail.
jm

Common fraudulent disbursement schemes include:

Expense reimbursement schemes, where the business reimburses the
perpetrators for expenses they never incurred.
Payroll schemes, where the business pays the perpetrator for time not
worked.
Billing schemes, where the business makes fraudulent payments to vendors,
including fictitious vendors.
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Companies mitigate all of these fraud risks by implementing in their processes

and systems internal controls such as segregation of duties, authorization, and
independent review.

4 Identify financial statement fraud and explain how to mitigate its

risks.

Financial statement fraud materially misrepresents the financial results and

position of the company by manipulating amounts or inappropriately disclosing

u
information in the financial statements to deceive investors, creditors, and other

ed
users of the financial statements. Financial statement fraud generally requires
management complicity.

u.
Section 302 of SOX makes the CEO and CFO directly responsible for the accuracy,
documentation, and submission of all financial reports, as well as a report on the

ny
adequacy of the system of internal controls, to the SEC.
Financial statement fraud is designed to achieve one of two goals:
n.
Overstate the company’s financial performance by overstating assets,
revenues, and profits and/or understating liabilities, expenses, and losses.
er
This can be done in the following ways:
Sham sales to overstate revenue
st

Unauthorized sales to overstate revenue

8@

Channel stuffing to overstate revenue

Improper sales cutoffs to overstate revenue
03

Capitalizing expense by reporting them as assets to understate expenses

Improper expense cutoffs by deferring expense recognition to understate
l10

liabilities
Understate the company’s financial performance. Common schemes include:
jm

Misclassification of sales revenue to something other than sales to

understate sales revenue
Improper sales cutoff to defer revenue recognition and understate sales
Failure to record revenue
Expensing of costs that should be capitalized to overstate expenses
Improper expense cutoffs to overstate expenses
Recording of fictitious expenses to overstate expenses
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Controls to prevent and detect financial statement fraud include vertical and
horizontal analyses, segregation of duties, proper authorization procedures,
independent reviews, data analytics, a good control environment, a whistleblower
hotline, and systems controls.

CPA questions, as well as multiple choice, discussion, analysis and application, and
Tableau questions and other resources, are available online.

u
ed
Multiple Choice Questions

1. (LO 1) Which of the following scenarios is not an example of a behavioral fraud

u.
red flag?

ny
a. Your coworker complains he didn’t get a large enough bonus this year and
won’t be able to afford his son’s soccer registration fees.

n.
b. Your coworker dislikes your manager and regularly complains about her.
c. Your coworker brags about buying a new house in one of the most expensive
er
parts of town, where a lot of the company’s executives live.
d. Your coworker never takes vacation days or sick days because he says nobody
st

else could do his job right.

8@

2. (LO 1) Corruption fraud schemes include

a. asset misappropriation, financial statement fraud, conflicts of interest, and
03

illegal gratuities.
b. economic extortion, illegal gratuities, asset misappropriation, and expense
l10

reimbursement fraud.
c. asset misappropriation, bribery, stolen cash, and billing schemes.
d. bribery, conflicts of interest, economic extortion, and illegal gratuities.
jm

3. (LO 1) Which of these is not a component of fraud?

a. Concealment
b. Act
c. Damages
d. Conversion

4. (LO 2) Which of the following is correct concerning a fraud risk factor?

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a. Its presence indicates that the risk of fraud is high.

b. It has been observed in circumstances where frauds have occurred.
c. It always requires modification of planned audit procedures.
d. It is also a material weakness in internal control.

5. (LO 2) “The company is so large it won’t even notice it” is a type of

a. opportunity.

u
b. concealment.

ed
c. perceived pressure.
d. rationalization.

u.
6. (LO 2) The first behavioral element in the fraud triangle is

ny
a. perceived pressure.
b. opportunity.
c. rationalization. n.
d. conversion.
er
7. (LO 2) The element of the fraud triangle that a company has most influence
st

over is
8@

a. rationalization.
b. management perceptions of fraud.
c. opportunity.
03

d. perceived pressure.
l10

8. (LO 2) If perceived pressure and opportunity to commit fraud are high and
personal integrity is low, then the risk of fraud is
a. low.
jm

b. medium.
c. high.
d. certain.

9. (LO 3) The most difficult asset misappropriation fraud scheme to detect,

because it leaves no starting point or audit trail for auditors to investigate, is
a. non-cash larceny.
b. skimming.
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c. fraudulent disbursements.
d. expense reimbursement fraud.

10. (LO 3) An example of an asset misappropriation scheme is

a. larceny.
b. economic extortion.
c. illegal gratuities.

u
d. fictitious revenues.

ed
11. (LO 3) A major difference between skimming and cash larceny is that:
a. skimming is on the books, while larceny is off the books.

u.
b. skimming occurs after the cash has been entered into the accounting system,
while larceny occurs before it is entered into the system.

ny
c. larceny involves expense reimbursement schemes, while skimming involves
recording fictitious revenues.
n.
d. larceny occurs after both the transaction and the cash have been entered into
er
the accounting system, while skimming occurs without the transaction being
entered into the system.
st

12. (LO 3) The major classes of asset misappropriation are

8@

a. skimming, larceny, and fraudulent disbursements.

b. skimming, double dipping, and payroll fraud.
03

c. skimming, fraudulent disbursements, and vendor fraud.

d. skimming, larceny, and corruption.
l10

13. (LO 4) Which of the following is an example of fraudulent financial

reporting?
jm

a. Company management changes inventory count tags and overstates ending

inventory while understating cost of goods sold.
b. The treasurer diverts customer payments to his personal bank account,
concealing his actions by debiting an expense account, thus overstating
expenses.
c. An employee steals inventory, and the “shrinkage” is recorded in cost of goods
sold.
d. An employee steals small tools from the company and neglects to return
them; the cost is reported as a miscellaneous operating expense.
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14. (LO 4) An example of pressure to commit financial statement fraud is

a. personal habits such as gambling or drugs.
b. an employee bearing a grudge against the employer.
c. unreasonable performance metrics set by management.
d. reasonably expecting the fraud to go undetected.

15. (LO 4) A fraud committed to lessen the amount of earnings that will be taxed
this year is an example of

u
a. misappropriation of assets.

ed
b. financial statement fraud that understates company perfor-mance.

u.
c. financial statement fraud that overstates company performance.
d. skimming cash before it is recorded in the company’s accounting books.

ny
16. (LO 4) The fraud in which a company inflates its sales revenue by forcing more
products through a distribution channel than the channel is capable of selling is
called
n.
er
a. unauthorized sales.
b. sham sales.
st

c. cutoff fraud.
8@

d. channel stuffing.

Discussion and Research Questions

03

DQ1. (LO 1) In the December 2020 edition of the Fraud in the

l10

Wake of COVID-19: Benchmarking Report, the ACFE reports the results of a survey of
its members. Overall, 79% of the survey respondents observed an increase in
fraud over the previous quarter, and 90% expected an increase in the next 12
jm

months.11 Discuss why the COVID-19 pandemic might result in an increase in

occupational fraud.

DQ2. (LO 1–4) Identify an occupational

corporate fraud case from a reputable news source like The Wall Street Journal, The
New York Times, your local news, or the ACFE website (www.acfe.org). Discuss the
fraud and explain why it is occupational fraud. Identify the various victims of the
fraud and explain how they have been victimized.
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DQ3. (LO 1) An anonymous tip

received at your company’s whistleblower hotline goes as follows: “The new
Purchasing manager, Robin, started six months ago. I think she is slowly squeezing
out some of our top vendors. She awards all the good contracts to a small vendor
named Blisst. We have never worked with Blisst before this. Vendors we have
used for years are disgruntled that they are no longer receiving work and are
threatening not to bid on our projects again. I think Robin is engaged in some kind
of illegal activity. Maybe she knows someone at Blisst?” Which of the three fraud
categories do you think may be occurring in the Purchasing department? Is there

u
a specific fraud scheme Robin may be involved in?

ed
DQ4. (LO 2) Explain the difference between perceived pressure that could result
in the misappropriation of assets and perceived pressure that could result in

u.
financial statement fraud. Give examples of both types of pressure.

ny
DQ5. (LO 2) Which of the three elements of the fraud triangle can a company
most easily influence and why?

n.
DQ6. (LO 2) The following illustration provides useful information on the most
successful methods used recently for detecting occupational fraud, including the
er
importance of tips from a whistleblower hotline. Do any of the results surprise
you? Explain.
st
8@
03
l10
jm

DQ7. (LO 3) Tina, a trusted bookkeeper at a medical

practice, regularly forged the signature of an authorized signatory on the business
bank account because she had access to blank checks. She wrote business checks
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to a shell company she maintained. She stole more than $500,000 over a five-year
period before another employee accidentally detected and reported the fraud.
Tina debited various expense accounts to conceal her criminal activities. Identify
the main category and one subcategory for this fraud and explain your answer by
discussing the impact on the financial statements.

DQ8. (LO 4) Perform an internet search for financial statement fraud

and look for news articles posted in the past year. Find an example of a fraud, or
suspected fraud, involving asset misappropriation. Summarize the case and

u
include details about the fraud scheme used or suspected. Include a link to the

ed
original article in your submission.

DQ9. (LO 4) Distinguish financial statement fraud from other fraud types by

u.
explaining the role of management and who ultimately benefits from financial
statement fraud compared to other types.

ny
DQ10. (LO 4) Define capitalization and explain how it relates to fraud. Include the
types of fraud schemes that use capitalization.
n.
er
st
8@
03
l10
jm
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prosecuted.

Application and Analysis Questions

Act Concealment Conversion
A. A salesperson steals 1. Falsifying timesheet i. Cashing company checks
an iPhone from the entries to a shell company’s bank
display case account and transferring the
money to a personal bank
account

u
B. A cashier pads their 2. Creating fictitious ii. Selling it online or at a
time sheet with receipts local pawn shop

ed
unauthorized hours
every shift

u.
C. An employee 3. Billing to a shell vendor iii. Inflating company
submits personal revenue on financial

ny
purchases as statements
restaurant expenses
D. An accounts payable n. 4. Shipping at the end of iv. Receiving a paycheck to a
clerk creates the accounting period to personal bank account
er
fraudulent cause returns to come
disbursements of back after the end of the
st

company checks accounting period

8@

E. Management inflates 5. Including it in the store v. Receiving reimbursement

sales revenue by inventory count when it’s to a personal bank account
shipping unauthorized not there
03

sales to customer

A1. (LO 1) In the table above, match the acts, concealments, and conversions to
l10

create a complete fraud scenario.

A2. (LO 2, LO 4) Toshiba is a

jm

company riddled with a history of fraud and financial issues.12,13 From the 2015
accounting fraud where the company padded profits by more than ¥200 billion to
its negative net worth in fiscal year 2017 after massive losses to its nuclear power
plant business, Toshiba has experienced significant reputational damage.
In the early 2000s, Toshiba’s strategic plan included installing 45 new nuclear
power plants worldwide by 2030.
Consider the following unforeseen impacts on this strategic plan:
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Toshiba suffered throughout the global financial crisis that began in 2008 but
appeared to be rebounding in 2010.
On March 11, 2011, a magnitude 9.1 earthquake near Tokyo set off a tsunami
that caused the loss of nearly 20,000 lives and material damage estimated at
¥25 trillion.
The tsunami’s damage caused all the country’s nuclear reactors to be taken
offline. By mid-2018, only 9 of the 54 nuclear reactors were back online.
China froze nuclear plant approvals and adopted a plan to decrease its usage

u
of nuclear energy by 2020, and the United States canceled or postponed plans

ed
to build 12 power plants.
The global reaction to the tsunami changed the demand for and acceptance

u.
of nuclear power.
During this time, the corporate culture at Toshiba was to push for success:

ny
The CEO in 2008 set income targets, known as “challenges,” for each division.
The income targets were so aggressive that they were often unattainable.
n.
The CEO insisted that the targets be achieved and even suggested that the
er
company would sell off underperforming divisions, putting both division
leaders and their employees at risk of losing their jobs.
st

The pressure from the CEO filtered through the company, all the way through
division leaders, managers, and employees.
8@

Even though the CEO never directly demanded that his employees commit fraud,
he relied on expected obedience—a significant part of the Japanese corporate
culture—to cause his employees to do whatever was necessary to meet his
03

demands.
Toshiba’s corporate structure failed to rotate key accounting and finance
l10

personnel. Employees were assigned to the same division for their entire careers
at Toshiba, which created a rapport among division employees that spanned
decades. This culture created an environment in which it was difficult for an
jm

employee to speak out against inappropriate actions. Toshiba’s board of directors

consisted primarily of employees who were placed on the board after years of
employment, and this created strong loyalty between board members and the
company’s employees.
Additionally, Toshiba’s Internal Audit function reported to the CEO instead of to an
external audit committee:
Toshiba leadership used the Internal Audit function in a consulting capacity to
recommend improvements to controls rather than reviewing the actual
accounting methods.
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Leadership created plans to address findings from the Internal Audit

department but failed to implement those plans.
The resulting fraud exposed in 2015 revealed that Toshiba had padded its profits
through fictitious revenues and understated liabilities by over ¥200 billion.
From the information provided, identify key facts related to each of the three
sides of the fraud triangle: (1) perceived pressure, (2) opportunity, and (3)
rationalization.

u
A3. (LO 3) As a data analyst for an internal fraud
advisory team at a regional accounting firm, you have been asked to perform a

ed
review of the fraud risk in the client’s expense reimbursement process. You must
analyze the following travel expense transactions, submitted by the company’s

u.
vice president of sales. To assess the transactions for the presence of fraud flags,
you will perform the following four data analytics tests. Read about each test and

ny
visually review the spreadsheet below. Identify which transactions numbers each
test would identify.
Tests: n.
Double dipping: Transactions where the amounts are the same and the
er
transaction dates are the same, but the types are different (one is credit card
and one is cash).
st

Duplicate expenses: Transactions where all fields are the same except for
8@

the expense submission date.

Inappropriate cash: Transactions with transaction type “Cash” and category
that is “out of policy” for cash payment. See “Out of policy cash categories”
03

(below) for a list of categories to analyze.

Late expense submissions: Transactions with an expense submission date
l10

more than 30 days after the transaction date.

Out of policy cash categories:
jm

Airline
Hotel
Rental Car
Meals (Over $35)
Rideshares (Uber, Lyft, etc.)
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u
ed
u.
ny
A4. (LO 3) Ms. Conover recently purchased a local
n.
coffee shop in Burlington, Vermont, after its previous owners were unable to
continue paying the lease. She hired a young couple to run the business and pays
er
them each a monthly salary. The couple live rent-free in the apartment upstairs
and are responsible for daily operations of the coffee shop. Ms. Conover asks
st

them to hire and supervise four to five part-time employees. The couple is also
responsible for keeping financial records, including expenses, payroll, and sales
8@

(both cash and credit card). They will keep cash received in a safe and make a
weekly deposit at a local bank.
Ms. Conover lives almost four hours away, in Boston. She plans to drive up to
03

Burlington to check on the coffee shop periodically.

Identify two areas of opportunity for the couple to commit fraud and identify a
l10

control that could be introduced to reduce the risk of fraud.

A5. (LO 3–4) You are an external auditor

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performing an interview with a senior manager of financial accounting at your

firm’s new client. During the interview, you ask the senior manager to explain the
overall operations and control environment of the department. Assess each of the
statements the senior manager gives you and identify it as either (i) a fraud risk or
(ii) not a fraud risk. If it is a fraud risk, explain whether it is most likely to indicate
the possibility of (A) asset misappropriation, (B) financial statement fraud, or (C)
either. Explain why.
1. Access to blank checks and signature plates is restricted to the cash
disbursements bookkeeper, who personally reconciles the monthly bank
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prosecuted.

statements.
2. There is a lack of independent checks in the accounts receivable process.
3. The accounting department has experienced high turnover among senior
management.
4. There was a strained relationship between management and its previous
external auditors.
5. Vendor invoices are matched with related purchase orders and receiving

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documents (a three-way match) by the accounts payable bookkeeper, who
then approves the payments.

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6. Management has been pushing for using aggressive accounting practices to
maintain an increasing trend of earnings.

u.
7. The company has consistently reporting substantial earnings growth but

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struggles to generate cash flows from operations.

SEC Press Release Scenario

n.
Read the following press release from the SEC and use it to answer A6 through A8:
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Washington D.C., Sept. 4, 2018 —
The Securities and Exchange Commission today charged a telecommunications
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expense management company for its use of fraudulent accounting practices that
artificially boosted company revenues between 2013 and 2015. Four former members
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of the company’s senior management team were also charged for their roles in the
alleged misconduct.
As alleged in the complaint, Tangoe Inc., formerly a public company headquartered in
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Connecticut, improperly recognized approximately $40 million of revenue out of the

total of $566 million reported between 2013 and 2015. In some instances, Tangoe
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allegedly reported revenue prematurely for work that had not been performed,
including service prepayments, and for transactions that did not produce any revenue
at all. The SEC alleges that Donald J. Farias, a Tangoe executive, falsified business
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records, some of which were provided to Tangoe’s external auditors to support revenue
recognition decisions.
“Without accurate financial reporting our public markets cannot function fairly or
efficiently,” said Paul G. Levenson, Director of the Boston Regional Office. “We are
committed to protect the investing public against illegal accounting tactics that
artificially boost company performance.”
The SEC’s complaint, filed in federal court in Connecticut, charges Tangoe, its former
CEO Albert R. Subbloie, former CFO Gary R. Martino, former vice president of finance
Thomas H. Beach, and former senior vice president of expense management
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prosecuted.

operations Donald J. Farias. Each is charged with violating provisions of the federal
securities laws. Tangoe, Subbloie, Martino, and Beach have agreed to settle the SEC’s
charges without admitting or denying the allegations. They agreed to pay penalties in
the amount of $1.5 million, $100,000, $50,000, and $20,000, respectively. The
settlement is subject to court approval.”14

A6. (LO 1) According to Paul G. Levenson, director of

the Boston Regional Office, who was a victim of this fraud?

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A7. (LO 3–4) Was Tangoe Inc. charged with fraud

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resulting from asset misappropriation or financial statement fraud? What type of
fraud scheme was Tangoe Inc. using? What concealment method is mentioned in
the press release?

u.
A8. (LO 4) Members of the senior management team

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at Tangoe Inc. were personally charged and fined by the SEC. What regulation
specifies that management is responsible for the accuracy of financial statements
n.
and includes provisions that allow management to be personally charged and
fined for fraud?
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Tableau Case: Employee Reimbursement Expenses at
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Julia’s Cookies
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What You Need

Download Tableau to your computer. You can access
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www.tableau.com/academic/students to download your free Tableau license for

the year, or you can download it from your university’s software offerings.
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Download and save the following file:

Chapter 15 Raw Data—Employee Expenses.xlsx
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Case Background
Big Picture:
Analyze fraud red flags in expense reports.
Details:
Why is this data important, and what questions or problems need to be
addressed?
The employee expenses data reflects how employees are spending company
money on expenses related to the office, travel, subscriptions, memberships,
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prosecuted.

food, and more. Before you can start spending money and calling it a
reimbursable business expense, you should review the company’s policies
and procedures. There may be a prohibited vendor list or cost limits to
comply with.
Analysis of this data helps identify potential fraud (the objective). While some
employees may accidentally submit noncompliant expenses for
reimbursement, there may be other employees who try to take advantage of
internal control deficiencies and attempt to defraud the company. For
example, fraudsters may attempt to:

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Double dip for a single purchase and be reimbursed twice

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Provide fraudulent mileage that might have been for personal travel
instead of business travel (usually around the holiday months)

u.
Ask the vendor to split a single invoice into multiple smaller ones in order

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to stay within the dollar amount limits that the business sets for a single
purchase
Plan: n.
What data is needed, and how should it be analyzed?
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Data needed to answer the objective is pulled from Julia’s Cookies’ Employee
Expenses database.
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Analyzing this data involves performing tests for four common employee
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reimbursement fraud schemes: employees approving their own reports,

purchases at prohibited vendors, inappropriate mileage, and duplicate
reimbursements.
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Now it’s your turn to evaluate, analyze, and communicate your results!
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Questions

1. Which department had the largest count of unique expense claims

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submitted?
2. Which department had the highest average amount per transaction?
3. Which expense category had the highest total transaction amount?
4. Employees should not approve their own expense reports. Usually their
manager is the approver; however, someone other than the employee should
approve a claim for segregation of duties purposes. Test the data to see which
employees approved their own expenses. (Hint: Create a true/false
calculation.) What are their names?
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prosecuted.

5. How much, in total, did the employees from question 4 approve for
themselves?
6. Julia’s Cookies has a list of prohibited vendors that employees are not allowed
to use while on business travel. One prohibited vendor is Airbnb. Julia’s
Cookies prohibits employees from staying at Airbnbs as they could be owned
by the employee or a family member, creating a conflict of interest. How
many employees broke the rules and used Airbnb as a vendor?
7. Employees at Julia’s Cookies can use their personal vehicles to travel to

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customer sites. An employee who chooses to do so is reimbursed based on
mileage. Sometimes employees abuse the system. A red flag exists when an

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employee reports more miles than their monthly average. Test the data
between the transaction dates 7/1/2025 and 12/31/2025 for above-average

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mileage. (Hint: Use a line chart.) Identify the employee(s).
8. How many total miles did the employee(s) from question 7 report for the

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month for which they potentially committed this type of fraud?
Take it to the next level!
n.
9. When booking a flight, an employee books and pays for the flight in advance,
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which means they can submit their air ticket reimbursement prior to their
trip. After they come back from the trip, some employees may claim
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reimbursement again, along with their other expenses, accidentally or with

the intent of defrauding the company. Test the data to see if there were any
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duplicated ticket numbers in the data set. How many air tickets were
reimbursed twice?
10. Which employee had duplicate reimbursements of airline tickets?
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Notes
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1 Bryan Garner, ed. 2004. Black’s Law Dictionary. 8th ed.

2 A Ponzi scheme lures investors to invest in a seemingly legitimate business,

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which then pays fictitious “profits” to earlier investors with funds from more
recent investors. An example is the well-publicized fraud perpetrated by Bernie
Madoff.

3 www.acfe.com/report-to-the-nations/2020/

4 We mention the ACFE’s Report to the Nations: 2020 Global Study on Occupational
Fraud and Abuse a number of times in this chapter. To find more details or read
the report, see www.acfe.com/report-to-the-nations/2020/.

5 abcnews.go.com/Business/story?id=86817&page=1
Printed by: [email protected]. Printing is for personal use only. No part of this book may be reproduced or transmitted without publisher's prior permission. Violators will be
prosecuted.

6 www.justice.gov/opa/pr/georgia-man-arrested-attempting-defraud-department-
veterans-affairs-multimillion-dollar-covid

7 abc7news.com/coronavirus-supplies-how-feds-uncovered-fraud-involving-39-
million-n95-masks/6104173/

8 Perri, Frank S., and Brody, Richard G. 2011. “The Sallie Rohrbach Story: Lessons
for Auditors and Fraud Examiners.” Journal of Financial Crime 18(1): 93–104.

9 www.wbtv.com/story/8361472/sallie-rohrbach-murder-investigation/

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10 Research report commissioned by the Committee of Sponsoring Organizations

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(COSO): Fraudulent Reporting: 1998–2007, An Analysis of U.S. Public Companies.

11 www.acfe.com/uploadedFiles/ACFE_Website/Content/covid19/Covid-

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19%20Benchmarking%20Report%20December%20Edition.pdf

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12 www.investopedia.com/articles/investing/081315/toshibas-accounting-scandal-
how-it-happened.asp

n.
13 Unmasking the Fraud at Toshiba, Caplan, D., S.K. Dutta, & D.J. Marcinko. Issues
in Accounting Education 34(3), 2019.
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14 www.sec.gov/news/press-release/2018-175
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