HOMEWORK HELP | Which elements of the fraud triangle are present in this situation? Which type of fraud is in consideration?

Assignment:
You are an assistant in the accounting department of Thunderduck Shoes, a small retailer. The company has a loan that requires the company to maintain a minimum cash balance of $75,000, as reported on its year-end balance sheet. The cash balance in the general ledger was $80,000 prior to recording payroll for salaries of $15,000 that were earned in the current month.

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Your supervisor says the only way Thunderduck Shoes can meet its loan requirement is to delay recording the December payroll journal entryl until January of the next year. This would be pretending as if the payroll checks were not issued until after year-end.

You questioned whether this would be ethical. The supervisor’s reply was, “Well, we don’t really have a choice. Either we do this, or we violate the terms of the loan agreement and possibly be forced to repay the loan immediately. That could put us out of business. Think of all the people who would lose their jobs! Just wait to record the December payroll journal entry until January —probably before many of our employees even get the checks we have written to them.”

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Required:
Write a 1-2 page technical business memo addressed to your mentor at work discussing the ethical decision you must make. Be sure to consider and discuss the following questions.
• Which elements of the fraud triangle are present in this situation? Which type of fraud is in consideration?
• Who might suffer in the short term if you go along with your supervisor’s request? What might happen in the future if you go along with the request this time? If you do not go along, who might suffer in the short term and what could be the long-term consequences?
• You want to be loyal to your supervisor but honest to others who rely on your work. As an accounting assistant, which of these concerns should be most important? Why?
• What alternative courses of action can you take? Which of these is “best” given the circumstances?

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Criteria:
Your business memo should briefly summarize the issue to your mentor at the company that works in a different department. The memo should discuss in detail the ethical considerations as you make your decision. Be sure to use your own words to paraphrase the information.

Answer

Essentially, the three elements of the fraud triangle include opportunity, rationalization (attitude or justification), and pressure (motivation or incentive). In the situation involving Thunderduck Shoes and delaying of the payroll journal entry for a month, the fraud triangle elements present include opportunity and pressure. These two elements of the fraud triangle explain the type of fraud into consideration. For instance, in terms of opportunity, there is a weakness in the Thunderduck Shoes’ system, which is a lack of oversight.

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The supervisor seeks to take advantage of the lack of oversight in the company to postpone the payroll journal entry by a month for an opportunity to cook the financial books. The lack of oversight is an example of stealing. Opportunity is difficult to spot, which explains the supervisor’s intention to commit fraud by taking advantage of the existing weakness in the system. At the same time, the fraud triangle element – pressure – (Liao et al., 2019) best explains the type of fraud in consideration by the supervisor at Thunderduck Shoes. For instance, pressure acts as motivation whereby the need to meet the debt obligations has pushed the supervisor to consider committing fraud. As the assistant in the accounting department of Thunderduck Shoes, if I go along with my supervisor’s request, the company would be absolved in the short-term, which means avoiding the financial | GET AN EXPERT FOR YOUR ASSIGNMENT | of not having to meet the debt obligation. In this case, failure to issue the payroll checks for another month means the employees will suffer in the | GET AN EXPERT FOR YOUR ASSIGNMENT | might happen, having | GET AN EXPERT FOR YOUR ASSIGNMENT | along with the supervisor’s request, is that the company would get used to cooking the payroll books, which means the debt obligations might be | GET AN EXPERT FOR YOUR ASSIGNMENT | would be found to have committed a financial fraud meaning the debtors would coming knocking, including the government | GET AN EXPERT FOR YOUR ASSIGNMENT | failure to go along with the plan in the short-term means the company will be obligated to meet the debt obligations by having to pay the loan immediately, which | GET AN EXPERT FOR YOUR ASSIGNMENT | be difficult for the company and its operations. The long-term consequences may include the company being listed with the credit bureau meaning access to credit…

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