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Cardinal Wholesalers, Inc.©

A Fraud Examination/Auditing Case Simulation

by Thomas Buckhoff, Ph.D., CPA/CFF, CFE and Bonita Peterson Kramer, Ph.D., CPA, CMA, CIA

© 2011. No part of this work may be reproduced or used in any form or by any means

without the written permission of the authors.

To Students:

Welcome to Cardinal Wholesalers, Inc.: A Fraud Examination/Auditing Case Simulation!

Pedagogical research indicates that the best way to learn is by doing. This case simulation

provides you with the opportunity to learn basic fraud examination/auditing principles through

hands-on active participation. A brief description of the case is as follows:

This case simulation replicates the actual investigative steps that were followed in uncovering a

$1.75 million fraud scheme. The case background is based on an actual cash disbursements

fraud investigated by my partner, Tom O’Halloran of Forensic Solutions, LLC, and me. Since

the fraud involves an on-book scheme, you can uncover the fraud by examining accounting

records and underlying source documents. The vendor database contains 1,000 vendors making

it too time consuming and inefficient to examine all the source documents underlying vendor

payments. Using the red flags most common to fictitious vendor schemes, you must first use

Excel’s AutoFilter function to narrow down the vendor list to the six most “suspicious” vendors.

Using a password derived from the names of the six vendors, you will then access a PDF file

containing three invoices from each of the six vendors to determine the most suspicious vendor.

Next, using the Taxpayer ID number as the password, you will examine the most suspicious

vendor’s recent bank statement along with cancelled checks to determine whether the fraud is a

fictitious vendor scheme or a pass-through scheme. Finally, you will write a brief report

summarizing the evidence and estimating the fraud loss suffered as a result of the fraud scheme

you uncovered. The report should also include specific recommendations for preventing this

type of fraud in the future. This case simulation increases competencies in the following areas:

 Problem solving, critical thinking, and document examination skills

 Computer skills, especially the ability to query a vendor database on Excel

 Technical skills relating to the detection, investigation, and prevention of fraud

 Research and professional writing skills