ACCT 654 Week 3 Individual Learning Project Proposal Example

Proposal: A Fraud Examination of Vendor Payments at Harbor Valley Family Services

Organization and Predication

Harbor Valley Family Services is a nonprofit agency that runs two shelters, a food pantry and a counseling program, with an annual budget of about $14 million funded by grants, contracts and donations. Last fiscal year, an unnamed caller to the agency's hotline said that cleaning and kitchen goods invoiced by Tri-County Facility Supply, a small local firm, did not seem to be reaching the shelters. A preliminary review by the finance director found that payments to the vendor had grown from about $38,000 to about $142,000 in three years, while shelter occupancy was flat. Together, the tip and the unexplained growth provide predication, a reasonable basis to believe that a fraud may have occurred.

Problem Statement

The project will test one hypothesis: that an agency employee, acting with or through Tri-County Facility Supply, caused the agency to pay for supplies that were never delivered. The examination is designed to disprove the hypothesis as readily as to prove it. If the evidence shows that the supplies were ordered, delivered and used, the project will report that finding and recommend improvements to the agency's purchasing controls.

Scope

The examination will cover all payments to Tri-County Facility Supply over the past three fiscal years, the vendor's file in the accounting system, the related purchase orders, receiving records and invoices, and the agency's purchasing and approval policies. Other vendors will be examined only for comparison and only through data analysis. The examination will not extend to payroll, grants management or donations.

Examination Approach

The work will move from the outside in, beginning with evidence that does not alert the subject. First, data analysis of the full payments file will compare the vendor's address, phone number and bank account with the employee master file, look for invoice numbers in unbroken sequence, test for amounts just below the agency's $5,000 approval limit and apply a first-digit test to the vendor's invoice amounts. Second, documents will be examined, matching each invoice to a purchase order and a signed receiving record and checking the vendor's state business registration. Third, interviews will proceed from shelter staff who receive supplies, to the purchasing and accounts payable staff, and only then to any employee the evidence points to. A report will be prepared for the board's audit committee and legal counsel.

Timeline

Data analysis and document requests will be completed in Module/Week 4, document examination in Module/Week 5, and interviews in Module/Week 6, leaving Module/Week 7 for the written report. If the vendor's records or a key employee prove unavailable, the scope will be narrowed rather than the deadline moved. Exhibits will include the data analysis results and a schedule of payments traced to delivery records.

Why the Approach Is Sound

Research supports beginning with data. Accountants and fraud examiners rate data mining and digital analysis among the most effective detection methods, even though organizations use them less than basic controls (Bierstaker et al., 2006). A first-digit test is suitable for invoice amounts because they arise from quantities multiplied by prices, although it cannot by itself prove fraud and must be followed by document work (Durtschi et al., 2004). Tips remain the most common way occupational fraud is detected (Association of Certified Fraud Examiners [ACFE], 2024), which makes careful follow-up of this one important. Finally, Jesus linked faithfulness with little to faithfulness with much (English Standard Version Bible, 2001/2016, Luke 16:10); an agency entrusted with donated money owes its donors careful handling of even routine supply purchases.

References

Association of Certified Fraud Examiners. (2024). Occupational fraud 2024: A report to the nations.

Bierstaker, J. L., Brody, R. G., & Pacini, C. (2006). Accountants' perceptions regarding fraud detection and prevention methods. Managerial Auditing Journal, 21(5), 520-535. https://doi.org/10.1108/02686900610667283

Durtschi, C., Hillison, W., & Pacini, C. (2004). The effective use of Benford's law to assist in detecting fraud in accounting data. Journal of Forensic Accounting, 5(1), 17-34.

English Standard Version Bible. (2016). Crossway. (Original work published 2001)