Financial Statement Fraud Schemes: Apollo Shoes, Inc.

Financial Statement Fraud Schemes
Taisha Ransom
ACC-556
September 30, 2013
Kimberly Warren

Financial Statement Fraud Schemes
Financial statement fraud is the “deliberate misstatements or omissions of amounts or disclosures of financial statements to deceive financial statement users, particularly investors and creditors” (Wells, 2011, p. 6). A fraud investigator has been assigned to Apollo Shoes, Inc. to determine what type of fraud schemes are likely to be present in the company. The investigator will make this determination based on the nature of business at the company and any evidence presented. The following brief will describe evidence the fraud investigator must collect to determine if fraud is present. The briefly will also…show more content…
“Fictitious sales most often involve fake or phantom customers, but can also involve legitimate customers” (Wells, 2011, p. 7). Certain events, such as unusual growth in accounts receivable days are red flags to fictitious revenue schemes. According to the Apollo Case, the company shipped a shipment of shoes worth over $3.1 million to a company called Mall-Wart. During the audit, the auditor found the amount owed appears correct, but there was no order placed for that shipment. Mall-Wart has entered into bankruptcy the month before and they informed Apollo Shoes, Inc.. To verify the validity of this transaction, the investigator needs to collect some evidence. The investigator needs to collect original documents relating to this shipment. This includes the original purchase order from Mall-Wart requesting the shoes and the original invoice from Apollo to Mall-Wart. This is a cause for concern, if Apollo Shoes cannot produce these documents, as this is how the investigator will know the transaction is valid. The investigator must interview accounting employees to gain an understanding of how the company’s accounts receivable process works. He or she will also need to check the necessary backup is included with the customer’s paperwork, such as bill to address, contact information, and so forth. Although Anderson, Olds, and Watershed sent confirmations to customers, the…show more content…
“The preferred and easiest method of concealing liabilities/expenses is to simply fail to record them” (Wells, 2011, p. 14). There are different types of evidence a fraud investigator must collect depending on what the company is trying to conceal. In Apollo’s case, it looks as if the company is trying to conceal a liability they owe for a shipment from Anglonesian Rehabilitation and Reprogramming Institute (ARRI) in December. According to the case, “Apollo personnel counted all inventory, including a shipment of shoes costing $8,434,889.09 that was received on December 31” (University of Phoenix, 2009, p. 90). However, according to Apollo’s Accounts Payable Schedule for the year ended December 31, 2011, there is no money owed to ARRI. The investigator needs to collect shipping and receiving documents such as a receiving report. This will tell the investigator the exact date Apollo received the shipment from ARRI. He or she should also collect invoices relating to this order to verify the date of the invoice. If this is true, it is almost impossible that as of December 31, Apollo owes ARRI nothing. The investigator needs to collect canceled checks to verify if Apollo Shoes has truly paid this invoice. Because the date is at the end of the year, the investigator may want to review Apollo’s outstanding checks. If Apollo has not paid this invoice, they are