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Nardzie Stone was the youngest sibling of a family whose parents owned and operated a small manufacturer of flocculant equipment, Stone Pound Inc. (SPI). Nardzie was part owner and executive officer of the corporation, and she was responsible for all human resources and payroll functions. She approved all payroll timesheets, but an outside vendor generated physical pay- cheques based on Nardzie's reports on employees' net pay. She fraudulently issued payroll cheques to actual SPI employees who had either been absent during the pay period or who had left the company, thereby creating "zombie employees."

 

Nardzie had no trouble falsifying records because she was the only one who ever looked at them. The company paid employees with physical cheques and sent them to Nardzie. Nardzie then fish out the fraudulent cheques, forge endorsements in the zombies' names over to her on the backs of the cheques and deposit them into her personal account.

 

i.The Association of Fraud Examiners (ACEF) laid out three (3) categories of fraud schemes. IDENTIFY the 3 categories of fraud scheme and DEFINE which one is illustrated in the case . 

 

ii.Define fraud and list and explain the five (5) conditions that make an act a fraudulent act.

 

iii. IDENTIFY and EXPLAIN the TWO levels of fraud that auditors encounter in a business, STATE the type identified in the case . 

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