Excursion Airlines Fraud Investigation Report

Introduction

Excursion Airlines is a small charter service that had been very profitable until 2009 when the financial statements showed an unexpected dive in Net Income. The business was good, and in fact, it appeared to be expanding. Revenues for 2009 continued to grow and exceeded $5 million. But profits in 2009 took a nosedive, which declined by 18% from the previous year. Our team was brought in to investigate the company’s records and detect fraud.

We focused our investigation on two specific accounts – Maintenance and Contract Services, which showed unusual increase from the previous year. Brian Snowden, the company’s systems administrator and controller, was concerned about the company’s disaster recovery plan, and thus, budgeted an extra $25,000 in Contract Services to investigate and correct any problems. But this does not account for the size of the increase in that account.

In addition, there were no significant maintenance problems for the airline in 2009. The maintenance manager, Angela Orr, has been with the company for years. She and her assistant, Mark Nately, usually deal with the company’s vendors. Orr is believed to be unlikely that she would involve in anything improper. We asked to review the account activity in the Maintenance and Contract Services accounts to identify any red flags of fraud.

Investigation Process

The initial step in the investigation process was reviewing and performing analysis on Excursion’s financial statements. We performed vertical and horizontal trend analysis and ratio analysis on the income statement and balance sheet for years 2008 and 2009. The purpose of these analyses was to identify any unusual changes in specific accounts. Two accounts were identified: Maintenance Expense and Contract Services. We gathered additional information regarding these accounts including the date of payment, vendor names, vendor numbers, the person who approved the purchase, invoice number, and the amount of each payment....