ACC 646 Module 2 Fraud Tree Assignment Example

Classification of Suspected Schemes on the Fraud Tree

[Student Name]

Southern New Hampshire University

ACC 646: Introduction to Forensic Accounting and Fraud Examination

Module Two Assignment

[Instructor Name]

[Date]

The organization, setting and figures below are a composite written as a model document. No real employer, client, colleague or patient is described.

Classification of Suspected Schemes on the Fraud Tree

Introduction

In March, the company's owner received an anonymous letter saying that a contract hauler "is paid for loads nobody sees." A preliminary review by the controller turned up irregularities in four other areas. Before an investigation is planned, each suspected scheme is classified using the Association of Certified Fraud Examiners' occupational fraud and abuse classification system, the fraud tree, so that the investigation can use the right methods and evidence for each (Association of Certified Fraud Examiners, 2024).

Scheme One: Phantom Hauling Loads

A contract hauler billed for about 4,100 loads of sand and gravel moved from the north quarry to two batch plants last year, at about $600 a load. Scale house tickets exist for only about 3,030 of them. The hauler is owned by the brother-in-law of the north quarry's superintendent, who approves its invoices. This is asset misappropriation, fraudulent disbursements, billing scheme. If the hauler performs no real work, it is a shell company scheme; because it does haul some loads, it is better described as a billing scheme through an existing vendor, with overbilling. The superintendent's family tie and approval role also suggest a conflict of interest, which falls under corruption, so the investigation should examine both.

Red flags: invoiced loads exceeding scale tickets, loads billed on days the quarry was closed for weather, a vendor related to the approver. Failed control: invoices were approved by the superintendent without matching to scale tickets.

Scheme Two: Fuel Card Purchases

A dispatcher's company fuel card shows weekend purchases at stations near his home, about $14,000 over 18 months, when company trucks were parked. This is a billing scheme through personal purchases with company funds. Failed control: no one compared fuel card transactions with vehicle telematics.

Scheme Three: Ghost Drivers

Two mixer drivers at the Sparks batch plant were paid for 11 months but have no dispatch tickets, no telematics logins and the same bank routing and account number as the plant's dispatcher. This is a payroll scheme, ghost employees. Failed control: the plant manager both approved new hires and submitted time.

Scheme Four: Unrecorded Scale House Sales

At the south quarry, contractors buy small loads of aggregate for cash. Cash sales fell 40 percent last year while weighed tonnage for walk-in customers did not. This suggests skimming of unrecorded sales: the scale operator weighs the load but does not ring up the sale and keeps the cash. If the sale were recorded and the cash then taken, it would be cash larceny; the evidence so far points to skimming. Failed control: the scale system allows tickets to be voided without supervisor approval.

Scheme Five: Tire Dealer Kickbacks

The purchasing agent awarded all tire business to one dealer at prices about 18 percent above two competing quotes on file, and bought a boat for cash last summer. A payment from the dealer to the agent would be corruption, kickbacks, not a billing scheme, because the outside party pays the employee for influence over purchases. Failed control: no competitive bidding threshold for recurring purchases.

How the Schemes May Connect

The schemes may not be independent. The dispatcher whose fuel card shows weekend purchases is also the person whose bank account receives the ghost drivers' pay, so schemes two and three likely share a perpetrator, and his access to dispatch records may have helped hide the ghost drivers. The phantom loads could not be billed without someone at the north quarry signing off on deliveries, which points to the superintendent but could also involve a batch plant receiver who accepted the hauler's delivery sheets. Collusion matters because it defeats segregation of duties, the control most of the company's processes rely on, and because it changes how interviews must be sequenced: interviewing one participant may alert the other. The investigation plan should therefore treat the dispatcher's schemes together and look for links between the superintendent and the batch plant receivers before anyone is approached.

Immediate Steps

Some actions should not wait for the full investigation. The controller should require scale tickets for every hauler invoice before payment, which stops new phantom billing without signaling why; suspend the two ghost drivers' direct deposits pending HR verification of identity, framed as a routine audit of personnel files; and place the fuel cards on transaction alerts. IT should preserve, without notice to users, email and dispatch system data for the superintendent, the dispatcher and the purchasing agent, and image their company phones and laptops under counsel's direction. Original vendor files, scale tickets and payroll records should be copied and secured, with originals logged under a chain of custody. None of these steps accuses anyone, and each protects evidence that later work will need.

Classification Summary and Priority

Classification and ranking

Priority reflects both likely loss and evidence risk. The hauler and kickback schemes rank first because they are largest and because evidence held by outside parties, the hauler's records and the agent's bank accounts, may be destroyed if the subjects learn of the inquiry. The ACFE's report shows corruption schemes carry a higher median loss than most asset misappropriation schemes, consistent with ranking the kickbacks second despite less evidence so far. Golden et al. (2006) emphasize that the order of an investigation should protect evidence and avoid alerting subjects, which argues for quiet document work before any interviews (Kranacher & Riley, 2019).

Conclusion

Classifying each scheme points the investigation to the right records: vendor files and scale tickets for the hauler, purchasing and bank records for the kickbacks, HR and telematics data for the ghost drivers, scale system logs for skimming and card data for fuel. Milestone One will plan the investigation of the hauler.

References

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

Golden, T. W., Skalak, S. L., & Clayton, M. M. (2006). A guide to forensic accounting investigation. Wiley.

Kranacher, M.-J., & Riley, R. A. (2019). Forensic accounting and fraud examination (2nd ed.). Wiley.