A small but growing firm has recently hired you to investigate a potential fraud. The company heard through its hot line that the purchases journal clerk periodically enters fictitious acquisitions. The nonexistent supplier’s address is given as a post office box, which the clerk rents. He forwards notification of the fictitious purchases for recording in the accounts payable ledger. Payment is ultimately mailed to the post office box. He then deposits the check in an account established in the name of the nonexistent supplier.

Required

a. Define fraud, fraud deterrence, fraud detection, and fraud investigation.

b. List four red-flag indicators (personal as opposed to organizational) that might point to the existence of fraud in this example.

c. List two procedures you could follow to uncover the fraudulent behavior of the purchases journal clerk in this situation.