Case Study

MHZ, Inc., is a high-tech company that produces miniature computer processor chips. The company is one of the most successful companies in its industry because it is always developing faster and more efficient processors in order to maintain a competitive advantage. Sales and earnings have increased significantly in recent quarters causing the company’s stock price to rise.

Hal Smith was recently appointed to be the new chief financial officer (CFO) of MHZ. Hal is 45 years old and has worked at MHZ for over 15 years. Hal was promoted to CFO because he has an excellent understanding of MHZ and the high-tech industry. Hal is well respected and knows everyone very well. At the close of the third quarter, Mark Jones, CEO of MHZ, asked Hal and management to meet with him to discuss year-end projections. During the meeting, Hal noticed that Mark and other members appeared to be stressed and nervous that the company might not meet analysts’ expectations because it had lost a contract with one of its major vendors. In the following weeks, Hal noticed Mark and other key employees began to appear more stressed and worried than normal. In addition, Hal recognized that Mark and one of his internal auditors would work continually into the night. At the close of the fourth quarter, every- one cheered when the company managed to meet its earnings expectations. Hal was relieved to see that the company had achieved its goal, but he couldn’t help wondering if something suspicious was going on.

Questions

1. List and briefly describe the six different types of fraud symptoms.

2. Describe the different fraud symptoms present at MHZ, Inc.

3. Assume that Hal has access to the company’s in- come statement and balance sheet. What types of analysis can Hal perform to determine whether fraud may be occurring at MHZ?