Fraud Detection Using Two Types of Analysis
Tyler Mandley
ACT510 - 1 – Forensic Accounting and Fraud Examination
Colorado State University – Global Campus
Dr. Karina Kasztelnik
March 6, 2016

Fraud Detection
According to a study conducted by the Association of Certified Fraud Examiners (ACFE), fraudulent financial statement accounts for approximately 10% of incidents concerning white collar crime (2009). In order to prevent this number from increasing, fraud examiners, employees, and management need to detect fraud early and prevent it.
Financial Statement Fraud
Falsifying financial statements involves the manipulation of financial accounts by overstating assets, sales and profit, or understating liabilities, expenses or losses. By using either trend analysis and/or financial statement analysis, one can detect fraud and anomalies. The statement of cash flows shows the cash inflows and cash outflows during a period. The statement details the net increase or decrease in cash as a result of operations, investment activities, and financing activities.
Possible Fraud
A company will want to build inventory to anticipate future sales, and in doing so, tries to meet the increase in sales with that of inventory growth. A possible reason for inventory that is growing at a faster pace than sales might indicate obsolete, slow-moving merchandise or overstated inventory. I believe in this case, most likely, fraud is occurring due to the significant difference between the two rates. With inventory increasing at a rate of 39 percent per year and sales only increasing at a rate of 4 percent per year, possible red flags may be found when analyzing the financial statements.
Overstated inventory is a potential area for fraudulent activity. If fraud is being committed, then there needs to be some investigating. When analytical procedures uncover an unexpected