Fraud Detection Using Trend Analysis - 1639 Words

Option #1 - Fraud Detection Using Trend Analysis and Financial Statement Analysis Recent analyses of Roamana, Inc. financial statements show alarming results. While sales have increased 4 percent per year, inventory has risen 39 percent annually. The prevalent concern regarding such anomalies is the possibility of fraudulent activities occurring within the organization. Should it be determined that fraud is occurring, a decision on the next step of the investigation must be determined before proceeding which will provide conclusive evidence, stop such activities, and not endanger the organization’s reputation or alienate staff not involved in the illegal activities. Fraud Red Flags of Financial Statement Analyses Analysis of financial†¦show more content†¦Such flags must be investigated to determine if fraud has indeed occurred. Within Roamana, Inc. financial statements, revenue increased 4 percent, while analysis of the Statement of Cash Flows revealed dramatic increases and decreases in accounts receivable, accounts payable, and inventory between 2010 and 2012. Change in accounts receivable in 2010 was 25 million, while Roamana, Inc. saw a 1,020% decrease in 2011 of a negative $230 million. Additionally, Roamana, Inc. change in accounts receivable increased 207 percent over 2011 with a negative $706 million in 2012. Such a staggering change from 2010 to 2011 should have prompted questions and further investigation without allowing another year to pass and additional substantial changes to occur. Additionally, the change in accounts payable in 2011 was 50 percent less than 2010, however, 2012 resulted in a 233 percent increase in change over 2011. Moreover, inventory’s change from 2010 to 2011 was a decrease of 40 percent, while 2012 showed a 433 percent decrease (see Table 1). Whereas the changes in inventory and accounts payable were not as staggering as accounts receivable between 2011 and 2010, the changes that occurred in financing and investment activities again should have prompted questions. Proceeds from sale of securities increased 273 percent 2011 and declined 55