Trueblood Case Analysis

08-9: Fraud and Illegal Acts

Sean Chang, Billie Sayavong, John Hamilton,

ACC 695M

September 24, 2011

Background

Our project team analyzed the Fraud and Illegal Acts Case (True blood Case Studies- Case 08-9), which involves a questionable sales transaction made between Jersey Johnnie’s Surfboard, an SEC registrant, and Mr. Sinaloa, an independent sales representative of the company. As a simplified overview of the case, an external audit firm was hired on to perform a year-end audit of Jersey Johnnie’s Surfboards, Inc. Towards the end of the audit, the engagement partner notified the auditors that there could be a possibility of fraud and illegal acts made by the company. …show more content…

Since top executives perpetrate management fraud, their processes are generally sophisticated. Therefore, audit committee members must rely on the professional expertise of external and internal auditors, legal counsel and special investigators when investigating management fraud. In 2008, The Institute of Internal Auditors (IIA), the American Institute of Certified Public Accountants (AICPA) and the Association of Certified Fraud Examiners (ACFE) collaborated on an landmark guidance that defines fraud, which was named “Managing the Business Risk of Fraud: A Practical Guide ” In the fifth section of this publication: Fraud Investigation and Corrective Action, it gives the audit committee a clear instruction when they receive the allegation, the investigation and response system should include a process for:

1. Categorizing issues;

2. Confirming the validity of the allegation;

3. Defining the severity of the allegation;

4. Conducting the investigation and fact-finding;

5. Resolving or closing the investigation;

6. Listing types of information that should be kept confidential;

7. Defining how the investigation will be documented;

8. Managing and retaining documents and information;

9. Determine what