1. What red flags signaled that fraud was possibly occurring at CIT?
Before getting into what Werle said her red flags were that signaled something might be happening, I thought it was weird and
unprofessional that him and the Senior Vice President had both a professional and social relationship. It was mentioned in the
article that they would occasionally have dinner with each other’s families’. That made me wonder if his promotion was related
to their social relationship. The article did mention that Thompson would criticize him when needed. Werle said that the biggest
red flag that alerted her was when a customer called to return equipment that she did not authorize. She then looked further into
the databases or systems and could not find any record of PGT authorization. Werle also did not recognize the warehouse name
and address as an approved CIT remarketer. The next red flag I noticed was with each of Niakan’s schemes, he would mention a
friend’s name. There were two examples of this in the article – Williamson and Nasser. Two close friends of Niakan that happen
to be unapproved computer resellers. Niakan violated company policy by overriding internal controls and selling computers to an
unapproved remarketer. Another red flag that could have signaled fraud was possibly occurring at CIT was the fact that Niakan
asked end of lease team and the remarketing team to always notify him especially when large amounts of computer equipment
were slated for return. This seemed like unusual behavior to Werle. After having multiple unsettling conversations with Niakan,
she decided to dig a little deeper into investigating what Niakan was up to.
2. Give examples of preventive and detective controls that could have prevented this fraud.
Preventive controls are to keep fraud occurring in the first place. Detective controls are designed to detect errors or fraud. Some
examples of preventive controls would be separation of duties, physical controls, proper authorization, employee management,
and e-commerce controls. Example of detective controls would be reconciliations (managers periodically checking if physical
assets agree with accounting records), performance reviews (the actual performance of individuals should be checked against
their expected performance), and audits (independent auditor check attest to accuracy of internal controls). Proper authorization
(preventive) to approve transactions and documentation provides fraud prevention opportunities. Although it seemed like CIT
had their duties segregated evenly, maybe adding more personnel to segregate these duties would have made it easier to catch the
fraud or prevent it (preventive). It would have ensured that no employee could both perpetrate and conceal errors or fraud in the
normal course of their duties. Reconciliations (detective) would have helped prevent this fraud. If someone would have been
responsible to make sure the assets were accounted for when they were returned and payments when they were received to a
customer. Eventually, there was an audit that took place that discovered he had diverted part or all the proceeds from several
shipments of computers, but if this fraud could have been prevented if audits (detective) were done regularly.
3. How did Niakan’s role at CIT violate the segregation of duties control activity?
As Director of Asset Management, Niakan was responsible for the Remarketing Department that Werle managed and the End of
Lease Department – making him in charge of all returning off-lease assets at the Jacksonville branch. By him being over both
departments, it was easier for him to commit fraud because he had the trust of his employees and supervisors. Occupational
fraud, after all, is committed most frequently by the rank-and-file employees of a company. Niakan’s role at CIT violated the
segregation of duties control activity because he wanted to control or have the responsibility of all aspects of the transaction cycle
and he did not want anyone to handle it or take it over while he was away from the office. Segregation of duties provides for an
independent check on work performed and reduces the risk of error or inappropriate employee actions.
4. What techniques did Werle use to uncover the fraud? Should she have done anything differently?
Werle used digital analysis techniques to discover fraud perpetrated by Niakan. She conducted computerized analytical review. She
did some research on the Florida Secretary of State website to discover that CIT’s office equipment was being sent to a fitness
company. At this point, it was the most appropriate method to uncover the fraudulent activities. Considering the failure in the
inventory department and disorder at the warehouses, the technique was a powerful tool since it provided evidence that a client
had returned some equipment. Lack of the equipment in the system would have been a pointer of fraud, and the same would be
confirmed through a physical check at the warehouses. Digital techniques are crucial in conducting in-depth research of any
irregular activities in a company. Werle used the best available method. I do not think anything should have been done differently
considering what she was given and the state of the firm.
