(20 points) Fill in your responses to the questions that fol…
(20 points) Fill in your responses to the questions that follow in the text box below. Make sure to thoroughly and directly answer each question asked. Terry Shaw was the accountant for a small business. Terry’s wife really liked to shop, and it was causing Terry lots of stress about how he would pay for his wife’s purchases. Believing he should be earning twice his salary because the company hadn’t given raises in several years, Terry added a “ghost” (aka fictitious) employee to the payroll, which was easy enough to do since he managed the bank accounts, payroll records, and the accounting records. Every pay period, he generated a paycheck to the nonexistent ghost, but thanks to the company’s direct payroll deposit, the money actually went straight to Terry’s bank account. The bank evidently never noticed the discrepancy. During a surprise audit of the payroll account, Terry mysteriously left town. It didn’t take the auditors long to match the direct deposits and uncover the scheme, which cost the company $176,000 over three years. (Adapted from: Small Business, Big Losses by Joseph T. Wells, Journal of Accountancy, December, 2004) First, which (of the three major) categories of occupational fraud does this fraud fall into? Second, (a) identify and (b) define each of the three elements of the fraud triangle. Then, (c) explain where each of the three elements of the fraud triangle were present in this fraud case. Third, outside of generally stating “improve internal controls”, describe at least one specific action or policy that this company might have taken/implemented to reduce the risk of this fraud occurring?
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