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Running head: Cardinal Wholesalers’ Case 1

Cardinal Wholesalers’ Case 5









Cardinal Wholesalers’ Case









Cardinal Wholesalers’ Case

Assignment 1

It is important to understand the factors that influence people to commit fraud. The three factors commonly associated with fraud include opportunity, pressure, and rationalization. Bill Carter and Mike Smith defrauded Cardinal Wholesalers for years until they were apprehended. Evaluation of Bill Carter and Mike Smith under the fraud triangle will help determine the factors that influenced their decision to commit fraud.

Bill Carter

Bill Carter had just been fired for visiting inappropriate websites while at the company. Bill Carter felt that he was fired unfairly since other employees also visited such sites yet they were never fired. Based on such, Bill Carter could use rationalization in justifying the reason why he decided to defraud the company. Under rationalization, Bill could also justify the reason why he defrauded the company since it was still making profits. Since their fraud acts did not negatively influence the profits of the company, Bill Carter could justify his acts (Dellaportas, 2013).

The second factor as per the fraud triangle that influenced Carter`s decision to defraud the company was due to financial pressure. After being fired, Bill Carter did not have a source of income yet he was expected to $38,000 in debts plus school fee for his son who attended an expensive college. Bill was losing his patience after unsuccessfully looking for employment and it was then he knew that he had to look for an option to pay off his bills and to be able to survive, thus leading to his thoughts on defrauding his former company (Dellaportas, 2013).

The third aspect that drove Bill Carter to committing fraud was the opportunity. Bill was Mike1`s friend who well knew that he had been fired unfairly. Due to the sympathy that Mike had for Bill, Bill well knew that he would help him in committing fraud (Dellaportas, 2013).

Mike Smith

After Bill Carter was fired, Mike Smith took Carter’s position as the head of purchases. One of the factors that influenced Smith`s decision to defraud the company was the opportunity. Since he was the head of purchases, he had the opportunity to approve of all the transactions that were being made on behalf of the company, which meant that he would make bogus transactions without him being noticed. In addition, Carter knew of this opportunity, which made it easier for him to convince Carter to be his accomplice (Dellaportas, 2013).

The second factor as per the fraud triangle that led to Mike Smith defrauding his company was the financial pressure that he was under. Despite being young and single, Mike smith had accumulated debt as a result of his expensive lifestyle. Mike Smith loved expensive things and was also addicted to gambling, which affected his financial stability. As a result, Mike Smith was under financial pressure and when Bill Carter made a proposal to defraud the company, he felt that he would use the proceeds to clear his debt (Greenberg, 2017).

The third factor as per the fraud triangle that led Mike Smith committed the fraud was rationalization. After they made several transactions, they noticed that the company was not in any way making any losses and were actually making profits. Mike Smith was therefore, justifying his actions that even though they were defrauding the company, the company was still making profits.


Based on the information provided, it is possible to note of the three factors that led to Mike Smith and Bill Carter defrauding Cardinal Wholesalers: financial pressure, rationalization, and opportunity. Given their relationship to the company, their debts, and justification, they were able to defraud the company for years without even being noticed.

Assignment 2

Fraud has become commonplace in the current business world with vendor schemes increasing at a high rate. Vendor schemes have cost US companies millions of dollars. There is no company that is considered immune to vendor schemes since they can work for any company. Each company needs to put in place a coherent framework that reduces the chances of vendor scheme from happening. To understand the framework that needs to be put in place to reduce such from happening, it is important to understand how they work, how they are detected, how they can be investigated, and how to prevent them.

How Vendor Schemes Work

Vendor schemes have become common among companies in the United States. A vendor schemes usually occur when the accounts payable and other systems of payments are manipulated by individuals with malicious intent. Vendor schemes can be committed by individual vendors that could be working alone or colluding with employees working for the organization. In a vendor scheme, the employee is able to generate made-up payments to themselves using the company`s payment system. The employee creates a made-up vendor (shell company), which receives the payments. Alternatively, the payments could be made to an existing vendor who is expected to share the proceeds once they have reflected in their account. This way, the company will have paid for goods or services that were never delivered to the organization. Based on the information provided, Bill Carter created a shell company that Mike Smith made the payments to. Once the payments reflected to the account, Mike and Bill would split the money fifty-fifty. The case provided is, therefore, a perfect example of a vendor scheme.

How to detect vendor schemes?

Due to the increase in the number of vendor schemes, it is important to lay out a coherent framework that will help detect vendor schemes. One of the ways to detect a vendor scheme is a sudden increase in the expenses within an organization. In a vendor scheme, the fraudulent individuals increase the expenses of a company since payments are being made for products or services that were never delivered. Therefore, a sudden increase in the expenses from a company could be considered a red flag to a vendor scheme. The other way to detect a vendor scheme is unusual vendors that have been added to the list of vendors for the organization. The vendor list consists of vendors who are authorized to supply products and services to the company. If there are any unusual changes in the vendor list, this could be a red flag to a vendor scheme. The third way to detect a vendor scheme is unusual fluctuations in payables. When the payables become inconsistent over a short period of time, it is a red flag to vendor scheme.

How to investigate vendor schemes?

It is important to investigate vendor schemes once they have been detected. Once the management suspects of any form of vendor scheme, the investigation should start right away. One of the ways to investigate vendor schemes is by evaluating the payment of expenses and allow the purchases manager to account for the fluctuations in expenses that have been paid. Regardless of the size of the company, the purchasing manager should be able to account for any increase or decrease in the expenses of the company since they are the ones that authorize payments. In addition, it is important to investigate the details of the any unusual vendors. Any unusual vendors that may have been added to the vendor list will need to be investigated by checking their address, their phone number, tax identification number and check the details with the IRS. Through such thorough investigation, it will be easier to detect any vendor scheme being carried out.

How to Prevent Vendor Schemes

There are many ways to prevent vendor schemes. One is to always know the vendors and keep an updated list of the vendors to the organization. Any vendor willing to supply any products or services to the company needs to be vetted for identification. In addition, it is important to always check the details of a vendor with the IRS to prevent payments from being made to a shell company. In addition, it is important to ensure that the addresses of the vendors have been investigated. Any overlap between the address of an employee and a vendor is an indication of a vendor scheme. Through such strategies, it will be possible to reduce the chances of vendor schemes occurring in a company.

Vendor schemes cost companies millions of dollars annually. It is therefore important for companies to ensure that they put in measures that ensure early detection of any vendor scheme, which will help in investigations. Due to the evolving nature of fraud, it is important for a company to constantly evaluate its measures in detecting vendor schemes to ensure that they are in line with any developments in vendor fraud schemes.





Dellaportas, S. (2013). Conversations with inmate accountants: Motivation, opportunity and the fraud triangle. Accounting fórum37(1), 29-39.

Greenberg, J. (2017). A social influence model of employee theft: Beyond the fraud triangle. McGrawHill.

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