FIN 470 Week 4 Fraud Reporting and Legal Issues Example

Writing It Up and Getting the Money Back: The Fraud Examination Report, the Crime Insurance Claim, Civil Recovery and a Criminal Referral in the Midstate Case

[Student Name]

University of Phoenix

FIN/470: Fraud Examination and Forensic Accounting

Week 4 Assignment

[Instructor Name]

[Date]

Buckeye Comfort Supply, the case and all figures are composites written for a model paper; legal points and professional standards are summarized generally from the sources listed and vary by jurisdiction.

Branch manager Dale's signed statement, described in Week 3, closed the investigative phase at the composite Ohio distributor. Its leaders now needed a report they could give to their insurer, their lawyers and possibly prosecutors, and a plan to recover what they could. A report that overstates what the evidence proves can undo months of careful work, while one that states only facts lets every reader rely on it. This paper describes the report and the legal steps that followed.

The Structure of the Report

The forensic accountant's report followed a standard structure: an introduction stating who engaged her and why, the scope and limits of the work, background on the company and the people involved, the procedures performed, the findings with the evidence supporting each, the computation of loss and attached exhibits such as check images, work order searches and the signed statement (Golden et al., 2006). The report was addressed to counsel, consistent with the engagement.

Facts, Not Conclusions of Guilt

Professional standards for fraud examiners prohibit expressing opinions on the guilt or innocence of any person, since that is a legal determination (Wells, 2017). The report therefore stated that Midstate Coil Services received $412,300 in 44 checks, that no work orders or technician records showed the invoiced work, that Midstate's organizer was Dale's brother-in-law, that the checks were deposited to one credit union account and that Dale signed a statement acknowledging creating Midstate and receiving the payments. It did not call Dale a thief or say he committed a crime.

Computing the Loss

The direct loss was $412,300, documented invoice by invoice. Investigation costs, forensic accounting and legal fees through the report, were $68,000. Interest at the statutory rate from each payment date added about $31,000 for purposes of a civil claim. The total claim was about $511,000. The report separated documented amounts from estimates, so a reader could see which figures rested on records.

The Crime Insurance Claim

Buckeye's commercial crime policy covered employee theft up to $500,000 per occurrence with a $25,000 deductible. The policy required written notice within a set number of days after discovery and a sworn proof of loss within 120 days, with supporting documents. Counsel had notified the insurer the week the shared address was found. The proof of loss, built from the report, claimed $412,300 of direct loss. Investigation costs were covered only up to a sublimit of $25,000. The insurer paid $412,300 minus the $25,000 deductible plus $25,000 for costs, a total of $412,300, after verifying the documents.

Subrogation and Recovery From Dale

After paying, the insurer acquired the right to recover its payment from Dale. Buckeye retained its own claim for the deductible, uncovered costs and interest. Coordinating the two avoided competing lawsuits over the same assets.

Civil Options

Buckeye and its insurer could sue Dale for fraud and conversion, which requires proof by a preponderance of the evidence, a lower standard than a criminal case (Albrecht et al., 2019). A judgment would allow garnishment of wages and liens on property, but Dale's assets were limited: his house had little equity and his savings had gone to his son's debts. A negotiated restitution agreement, in which Dale signed a confession of judgment and agreed to monthly payments, could recover more over time at lower cost. Dale's retirement plan balance, about $160,000, offered another source, though federal law restricts reaching such plans except in specific circumstances.

The Criminal Referral

Buckeye referred the case to the county prosecutor. Depending on the jurisdiction, such a scheme may be charged under state theft and forgery laws, and because checks were mailed, federal mail fraud statutes may also apply. A criminal conviction requires proof beyond a reasonable doubt. Courts can order restitution as part of a sentence, which gives a convicted defendant a strong incentive to pay. Buckeye was careful not to offer to drop a criminal referral in exchange for repayment, which could expose it to claims of extortion.

The Expert Witness

If the case went to trial, the forensic accountant might testify. Under the Federal Rules of Evidence and similar state rules, a qualified expert may give opinion testimony if it rests on sufficient facts, reliable methods and their reliable application. The judge acts as gatekeeper, testing the methods. Her report's careful separation of documented facts from estimates, and her use of standard analytic tests, would support admission. Her role would be to explain the evidence, not to decide whether Dale intended fraud.

Who Reads the Report

The same report served several readers with different needs. The insurer's adjuster wanted documentation for each dollar claimed and evidence that the loss fell within the policy period. The county prosecutor wanted facts that could become charges and witnesses who could testify. Buckeye's board wanted to know how the scheme happened and whether it could happen again. Writing for all of them meant plain language, exhibits that stood on their own and a summary at the front that a reader could understand without the accounting detail. The examiner also prepared a separate memorandum on control weaknesses for the board, keeping the main report focused on facts.

Employment Actions

Buckeye terminated Dale's employment for cause after his statement, following its policies and counsel's advice, and documented the reasons. It did not make public statements about him, avoiding defamation risk.

Outcome

Dale pleaded guilty to a state theft charge and was ordered to pay restitution of the uninsured loss and the insurer's payment over time. Buckeye's uninsured losses, the deductible, the costs above the sublimit and interest, were about $99,000, of which it expected to recover part through restitution.

Conclusion

The report stated facts and left guilt to the courts, which made it useful to the insurer, the prosecutor and Buckeye's lawyers alike. Crime insurance recovered most of the direct loss quickly, civil and criminal paths offered recovery of the rest and careful handling of expert testimony, employment action and restitution protected the company from legal mistakes.

References

Albrecht, W. S., Albrecht, C. O., Albrecht, C. C., & Zimbelman, M. F. (2019). Fraud examination (6th ed.). Cengage Learning.

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

Wells, J. T. (2017). Corporate fraud handbook: Prevention and detection (5th ed.). John Wiley & Sons.