careful scrutiny of accounting records and financial statements 269734

Careful scrutiny of accounting records and financial statements can lead to the discovery of fraud or embezzlement. Each of the situations that follow may indicate a breakdown in internal control. Indicate the nature of the possible fraud or embezzlement in each of these situations.

1. Wages expense for a branch office was 30 percent higher in 2011 than in 2010, even though the office was authorized to employ only the same four employees and raises were only 5 percent in 2011.

2. Sales returns and allowances increased from 5 percent to 20 percent of sales in the first two months of 2011, after record sales in 2010 resulted in large bonuses for the sale staff.

3. Gross margin decreased from 40 percent of net sales in 2010 to 20 percent in 2011, even though there was no change in pricing. Ending inventory was 50 percent less at the end of 2011 than it was at the beginning of the year. There is no immediate explanation for the decrease in inventory.

4. A review of daily records of cash register receipts shows that one cashier consistently accepts more discount coupons for purchases than do the other cashiers.