ACC30003 Forensic Accounting Assignment Answers

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  • Topic– ACC30003 Forensic Accounting


Q1. Conversion Investigation Methods and Inquiry Methods


Ron Huxtable is a regional wine producer in the south-western region of Western Australia. A qualified vintner, he also owns a sprawling vineyard that he inherited from his father 20 years ago. The award winning wines that Ron produces are exported to markets in Asia and Europe and the business now employs over 100 full-time employees including long-time employee, Simon Watson, head of the purchasing department. A year ago Ron’s wife, Ruth, left the state taxation office to help as the business grew on the back of strong overseas demand. Recently, Ruth notices some unusual aspects about the behavior of Simon Watson. Among these, Simon is reportedly spotted driving a new Italian sports car with personalized number plates. Colleagues also overhear him talking about his collection of watches and even discussing investment properties in Sydney. Ruth is unsure about what to do and after a discussion with Ron, they both feel the need to find out and decide to hire you to determine if Simon is colluding with suppliers to embezzle from the business to fund his “trappings of wealth” and purported investment properties.


You interviewed some of Simon’s colleagues and together with searches of public records; you put together the following financial information about Simon Watson:


Simon Watson 2020 $ 2021 $
Cash on hand 1,000 3,000
Bank Accounts 25,000 85,000
Share Portfolio 5,000 150,000
Motor Vehicles 30,000 600,000
Watches collection 0 150,000
Bondi property 0 900,000
Loan Payable 20,000 300,000
Salary 105,000 150,000
Gambling Income 30,000 100,000
Mortgage expense 3,920 8,700
Motor Vehicle expenses 2,800 12,000
Other Living Expenses 25,000 49,000




a. Use the net worth method to calculate the following (show all workings):


  • Change in Net Worth from 2020 to 2021;
  • Required income for 2021;
  • Unknown Income for


b. Based on the information you have collected, discuss if the suspect is committing embezzlement?


c. Write a three-square plan to interview the


d. What is the purpose of developing a three-square plan in the investigative interviewing process?


Q2. Investigating Financial Statement fraud


You are recently hired as an investigative analyst at Krystalclear Research Pty Ltd. The company conducts due diligence research on published accounts of public listed companies that focus on uncovering opaque accounting practices that might expose financial statement fraud. Your immediate supervisor hands you a 3-year extract of the financial records of electricity retailer, NewX Ltd, a company listed on the local stock exchange. NewX shares have been rising as management of NewX continues to deliver what appear to be strong results year after year. In 2021, NewX reports a revenue of $9.3m representing a 3-year compounded growth rate of 27% from the $4.5m reported for 2019. Your supervisor finds this growth rate astounding and has her doubts as she knows the electricity retail market is competitive and that revenue growth generally tracks the rate of inflation. She also notes the announcement to the stock exchange by NewX of the sudden departure of its chief financial officer.


The extract provided to you consists of the following Balance Sheet and Profit & Loss items:


NewX Limited 2019 $ 2020 $ 2021 $
Balance Sheet items
Current Assets
Cash 900,000 850,000 890,000
Accounts Receivable 150,600 160,700 250,000
Prepaid Expenses 20,900 30,000 31,000
Inventory 50,000 49,000 48,700
Non-Current Assets
Motor Vehicles (net) 350,000 340,000 390,000
Equipment (net) 900,000 905,000 950,000
Buildings 2,590,000 2,590,000 2,590,000
Current Liabilities
Accounts Payable 450,500 500,000 435,500
Accrued Expenses 80,000 81,000 60,000
Loan Payable – short term 60,000 55,000 30,000
Non-Current Liabilities
Loan 350,000 320,000 400,000
Profit Statement items
Revenue 4,500,790 6,900,700 9,300,000
Gross Profit 2,500,000 2,250,000 2,100,000
Gross Profit Margin 55.5% 32.6% 22.6%




a. Perform horizontal analysis on the extract and identify five accounts that you consider to be particularly questionable. Show all workings (you may work in Excel and copy the results into your solution document).


b. For each of the five accounts you identified in part ‘a’, explain with discussion what different fraud schemes could be happening that would explain the


Q3. Consolidated unit question (Fraud Triangle, Fraud Prevention & Ethics)


(The following is an extract from “The ‘forever’ friend, the former boss, the ex-husband: the early

victims of fraudster Melissa Caddick“, The Age Good Weekend magazine, April 24, 2021.


“Is there anything else I need to know?” the investment chief asked with cold fury. Before him stood his well-groomed office administrator, Melissa Caddick (then known by her maiden name of Grimley), who had just been confronted with the evidence of her crimes: four cheques on which she’d forged his signature. Caddick shook her head.



It was 1998, and Caddick had landed a job running the Sydney office of a recently opened boutique investment house via a friend she’d worked with at the NRMA. Her boss recalls his assistant as being organized, efficient and reliable. Although there were only the two of them in the office, she dressed immaculately. “Her manicured presentation seemed suited to a job she aspired to, rather than the job she had,” says the former boss.



After Caddick had been there about six months, someone from the firm’s interstate head office queried discrepancies showing up between invoices and payments. When copies of the cheques for the suspicious payments were located at a National Australia Bank branch in Pitt Street in Sydney’s CBD, it became clear that Caddick had been forging her boss’s signature. Shown the cheques, a look of “I’m done” crossed the then 27-year-old’s face. “We can escalate it or you can leave immediately,” he offered.



Caddick made a hasty departure, packing her personal belongings into her designer handbag. “It was a clean exit, no lawyers, no police, no nothing,” her former boss says. She’d stolen a petty amount, less than $2000. She didn’t offer to repay it – and rather than going to the trouble of calling the police, the firm didn’t ask her to. It was just happy to see the back of Melissa Caddick. That, with hindsight, was a crying shame: a criminal record might have forestalled what was to come.



The case of Melissa Caddick and her missing millions has transfixed not just the eastern Sydney suburbs that was her milieu but the wider Australian population, ever since it emerged in November 2020 that the 49-year-old had been running a Ponzi scheme. Between 2012 and 2020, Caddick had convinced more than 60 people to entrust a combined $30 million of their savings to her sham wealth management business, Maliver, none of which she was actually investing on their behalf. Of the $30 million, only about $7 million was returned to clients, leaving as much as $23 million unaccounted for.



While it is not yet clear exactly where all those millions ended up, the old adage, “You have to act rich to be rich”, was one Caddick took to heart. Using the initial proceeds of her crimes, she bought designer clothes, expensive jewellery, European cars and a fancy house, and took her family on luxury holidays several times a year. The ostentatious trappings of wealth cloaked her in a chic veneer of success. She made herself appear more exclusive by telling potential investors that her books were full. She’d call later to say they were in luck – a place had become available.



Clients were sent a seven-page Maliver Financial Services Guide in which Caddick promised to “maximize client outcomes while working within the law”. Instead, she was breaking the law by operating a financial services business without a licence. Under the heading “YOUR ADVIER’S [sic] EXPERIENCE & QUALIFICATIONS”, Caddick also lied about her achievements, including that she had a master’s of business and was a certified member of the Financial Planning Association of Australia.



Once accepted, investors deposited money into Maliver’s Commonwealth Bank account. For each new client, she then created a bogus CommSec share trading account, these fake accounts featuring six-digit numbers where the genuine CommSec account numbers have eight. Not only did she forge her clients’ signatures where required, but when a Justice of the Peace was needed to witness that other signatures were genuine, she also forged the signature of her father-in-law, Rodo Koletti, a JP.



Using a cut-and-pasted CommSec logo, at the end of each month she emailed her investors a report. The shares in which she “invested” her clients’ funds never made a loss. Instead, they showed a dazzling return, sometimes up to 30 per cent a month. Buoyed by such returns, investors would put more money in and, via word of mouth, talk of Caddick’s impressive returns spread.



Most of her victims were her family and friends, many of whom lost their life savings. She ripped off friends she’d had from childhood, along with their families, her personal trainer, her two employees and a group of Perth surgeons, one of whom was a university friend of her brother.




a. What type of fraud is perpetrated? Explain


b. Analyze this case by reference to the Fraud Triangle (by also identifying the elements of in Fraud Triangle).


c. Explain three prevention strategies that could be adopted to avoid being a victim to such fraud.


d. Discuss two ethical issues/principles involved in dealing with assets one is entrusted with providing an example each where the perpetrator had failed.


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