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15 May 2019

What sections of the fraud examination checklist were most helpful to the investigation and why? Please be specific in the way the techniques you used based on the checklist will contribute to the overall investigation.

http://bartheft.com/post/2010/01/18/Exotic-Embezzling-Investigating-Off-Book-Fraud-Schemes.aspx#comment?

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Jarrod Robel
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17 May 2019

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By the time the New York identity theft fraud case was solved,over 30,000 people had suffered a total combined loss of over $2.7million. This money had been stolen by a ring of New York residentswho had accessed the victims’ credit information and exploited thatinformation to steal the victims’ identity. The fraud began whenLinus Baptiste approached Philip Cummings about a plan to steal andsell people’s personal information. Philip Cummings had begun towork at Teledata Communications, Inc., a third-partycredit-reporting agency that facilitates the retrieval of credithistory data. Teledata had outstanding contracts with over 25,000companies, allowing these companies to check on thecreditworthiness of potential customers, thus creating a directline past the three main credit bureaus. As a customer servicerepresentative, Cummings had obtained access to many confidentialaccess codes. These access codes were used by the clients ofTeledata to gain approval on credit requests. With access to thesecodes, Cummings had the opportunity to commit fraud. In early 2013,Cummings and Baptiste began to steal credit reports. The twofraudsters sold this information to a group of Nigeriannationalists. The Nigerian nationalists would pay up to $60 for oneperson’s infor mmation. After some time, the Nigerian nationalistsbegan to provide the two fraudsters with names and Social Securitynumbers to help facilitate the process even further. To convert theinformation into money, the Nigerian nationalists would use theinformation to gain access to the victim’s bank accounts and otherfinancial information. The group of Nigerian national- ists wouldthen take the following steps: Deplete the bank accounts of thevictims through wire transfers. Change the addresses of theaccounts so the cur- rent information was not sent to the victim.Order new checks to be written off of the victim’s bank accounts.Order new ATM cards so the money could be taken out in cash. Ordernew credit cards under the victim’s name. Establish new lines ofcredit under the victim’s name. By using these techniques, thefraud ring was able to steal over $2.7 million from consumers. Thismoney was stolen over a period of about three years. The mostintriguing aspect of the fraud was that Cummings quit working atTeledata half way through the fraud period, but was able tocontinue to steal the informa- tion for an additional two years.Cummings claimed that most of the access codes he had stolen whilework- ing at Teledata remained unchanged for the full two yearsafter he left the company. After three years, Cummings began to getgreedy and his greed led to the detection of fraud. Perceiving thathe needed to make more money, Cummings stole around 15,000 creditreports from Teledata by using the access codes of Ford MotorCompany. Then for the next four months, Cummings again stole alarge number of names. This time, Cummings used the access codes ofWashington Mutual Bank to steal 6,000 credit reports. Finally,three months later, Cummings made what would be his last big creditreport theft. Using the access codes of Central Texas EnergySupply, Cummings was able to steal 4,500 credit reports. After thetheft using Ford’s access codes, Equifax, one of the three largecredit bureaus in the United States, began to see the requestspikes in Ford’s account. After the next two large batches ofrequests, Equifax decided to investigate further. Equifax foundthat almost all of the credit report requests came from one phonenumber, and that the requests were done in large batches of about100. The location of the phone number was found, and a search byfederal authorities turned up a computer and other equipment thatwere used in the fraud.2 Cummings was prosecuted, sent to prison,and had to pay large fines. The victims faced the dreadful task ofrestoring their credit, a process that, in some cases, took a longtime to complete. Questions Assuming you are an agent with theFederal Bureau of Investigation, do the following: 1. Plan andcoordinate an investigation in a manner that would not arousesuspicion from Cummings and Baptiste. 2. Create a vulnerabilitychart to coordinate the various elements of the possible fraud. 3.Assuming your investigation used surveillance and/ or covertinvestigation techniques, what types of surveillance and/or covertoperations would you use? How would technology play a role in thispart of the investigation? 4. Finally, how would analysis ofphysical evidence help in this investigation? What types ofphysical evidence would be especially helpful?

Colombo Soft-Serve Frozen Yogurt CaseQuestions
After reading the Colombo Soft-Serve Frozen Yogurt Case Study(SEE BELOW) answer the first six questions below.Please type your answer to the questions below in a Word documentand send in through the designated drop box. Please be sure tofully answer each question. Most questions (with the exception ofquestion 3 and 4) will require at least three to five sentences toanswer.
1. Briefly summarize Colombo’s competitive environment
2. Describe General Mills’ strategy in response to the competitiveenvironment?
3. Finish filling out the numbers on the Profit/Loss statement forColombo Yogurt (attached) using ABC techniques. Be sure and watchthe Colombo Yogurt teaching clip that explains in detail how tobreak down the numbers on the Colombo Yogurt profit and lossstatement using ABC techniques.
4. Using the ABC analysis you completed on the worksheet answer thefollowing questions.
- Which segment has the most sales revenue?
- Which segment has the largest net income?
5. What does the ABC analysis reveal? Be sure and look at whatdrives the cost and be specific.
6. What changes would you suggest to help General Mills? Youranswer should reflect something that you observed by looking at theprofit/loss statement before and after the activityanalysis.

5- 2 Colombo Soft-Serve Frozen Yogurt
In 1994, General Mills Incorporated, a $6 billion consumer goodscompany, acquired Colombo Frozen Yogurt.
General Mills Inc. (GMI) believed they could add Colombo frozenyogurt to their existing product lineup to increase
net sales with little addition in marketing cost.
, Frozen yogurt is sold through two distinct segments - independentshops and impulse locations such as cafeterias,
icolleges, and buffets. Frozen yogurt is the main business for theshops whereas yogurt is incremental to the impulse
locations' main business. GMl's large sales force already servedthe impulse market.
The [mancial results in the first couple of years were mixed.Earnings increased slightly and then dropped each year
even though sales volume was relatively flat. In total,merchandising costs dropped, while pricing promotion rates
escalated. The GMI sales force focused on the impulse segments andpricing promotions were believed to be driving
volume increases. However, volume in the shop segment declined atalarming rates and there was widespread
dissatisfaction in the sales organization. While GMI knew sales bysegment, they didn't track costs by segment.
. Instead costs were allocated based on sales dollars. Thesituation was ripe for a clearer look using ABC methods.

TODAY'S FROZEN YOGURT MARKET STRUCTURE:
When Colombo Yogurt Company began marketing soft-serve frozenyogurt in the early 1980's, their main
distribution was through independent yogurt shops. In the early90's, they faced competition from franchise
operations such as TCBY and Freshens that replaced many of theindependent yogurt shops. And the market
changed as Foodservice operators such as cafeterias, colleges, andbuffets started to add soft-serve yogurt to their
business. By the late 90's, these Impulse locations accounted for2/3 of the soft-serve market.
:In the late 90's, Shop sales began to increase with the additionof distinctive new products such as smoothies,
boosters, and granitas. The Shops make their living from thesoft-serve business and must innovate or go out of
business (as thousands have done in the last decade). On the otherhand, the Impulse locations make their living
from other items and the soft-serve trade is only performancetopspin. These firms are unwilling to take any risk
(new equipment or extra labor) to serve highly differentiatedproducts like smoothies or granitas.
THE GMI-COLOMBO MARKETING PLAN:
The GMI Foodservice Division markets brands such as Cheerios,Yoplait, Betty Crocker, Gold Medal Flour,
Hamburger Helper, Pop-Secret, and Chex Snack to Food ManagementFirms, Hospitals, and schools. Colombo
yogurt was added to this product lineup and the Foodservice salesforce covered both Shop and Impulse locations.
Salesforce: Colombo's salesforce was merged into the Foodservicesalesforce. Customers were reassigned to
salespeople who already serviced that geographical area. Thesalespeople varied in their reaction to the product.
Some found shops easy to sell to while others avoided the shopsdespite the possible lost commission. Many spent a
lot of time helping their impulse customers understand how to usethe machinery.
. Merchandising Promotions: Colombo traditionally charged the Shopsfor merchandising that was large scale and
; eye popping (neon signs). The Shops used these signs to drawcustomers inside. GMI chose not to charge for
merchandising and to provide the same large scale merchandising toboth Shops and Impulse locations. Shops were
very interested in the kits while many Impulse locations didn'teven hang them up.
Pricing Promotions: Pricing promotions are a mainstay ofGMI'simpulse location approach. GMI's salesforce
generally used these promotion events as an opportunity to visittheir accounts and take advantage of the occasion to
meet service needs and sell other products that may not befeatured.
5-8
Chapter 05 - Activity-Based Costing and Customer ProfitabilityAnalysis
r"' GMI made price promotions available to both segments of themarket. While the deals were typically around $5 per
case, they averaged $3 per case against all the volume shippedduring the year. GMI marketing knew price was not a
major decision factor for Shops and they did not target pricingpromotions to them. However, Shops were aware of
the promotions and took advantage of them.
THE BUSINESS STATUS - PRE-ABC:
PROFIT AND LOSS BY SEGMENT - PRE-ABC
Cost of Goods Sold is made up of$14,250,OOOfor ingredients,packaging, and storage and $3,000,000 for pick/pack
and shipping. Since the product is the same across segments, thecost to produce should be the same. However,
pick/pack and shipping costs were found to vary with whether or notthe order was for a full pallet. Full pallets cost
$75 to pick and ship whereas individual orders cost $2.25 per case.There are 75 cases in a pallet and the segments
, differ in their utilization of full pallets as shown below.,
ABC ANALYSIS OF MERCHANDISING:
t :
Merchandising costs consist mainly of kits costing $500 each.A
review of where the kits were sent indicated that
3,450 kits were sent out and 90 of them were sent to shops.
ABC ANALYSIS OF SELLING, GENERAL AND ADMINISTRATIVE:
Since sales representatives service several products, their costsare allocated to the various products based on gross
sales dollars. GMI gave diaries to 10% of the sales force inrandomly selected markets of the country and asked
! them to track their time in activity classifications for 60 days.The diaries indicated that sales reps spent almost 3
!times as much time on the yogurt than GMI had estimated. The totalallocation to Yogurt jumped from $1,185,000
to $3,900,000. Of their time spent on Yogurt, only 1%of the timewas spent on the shops.
5-9
- - - ---
Category Impulse Segment Yogurt Shops
Total
Sales in cases 1,200,000 300,000 1,500,000
Sales revenue $23,880,000 $5,970,000 $29,850,000
Less: Price Promotions -$ 3.600.000 -$ 900.000 -$ 4.500.000
Net Sales $20,280,000 $5,070,000 $25,350,000
Less: Cost of Goods Sold -$13.800.000 -$3.450.000-$17.250.000
Gross Margin $ 6,480,000 $I,620,000 $ 8,100,000
Less: Merchandising -$ 1,380,000 -$ 345,000 -$ 1,725,000
!Less: SG&A -$ 948.000 - $ 237.000 - $ I.I 85.000
;Net income $ 4,152,000 $1,038,000 $ 5,190,000
ABC ANALYSIS OF COST OF GOODS SOLD:
""
Impulse Segment YOgurtShops Total
Cases in full Pallets 60,000 240,000 300,000
Individual cases 1,140,000 60,000 1,200,000
Total cases 1,200,000 300,000 1,500,000

Excerpt from the multipage Note 7…

The Company is required to provide standby letters of creditto support certain obligations that arise in the ordinary course ofbusiness. Although the letters of credit are an off-balance sheetitem, the majority of obligations to which they relate arereflected as liabilities in the Consolidated Balance Sheet.Outstanding letters of credit totaled $211 million at December 31,2007.

The net book value of the assets pledged as collateral forthe Company’s secured borrowings, primarily aircraft and engines,was $660 million at December 31, 2007.

As of December 31, 2007, aggregate annual principalmaturities of debt and capital leases (not including amountsassociated with interest rate swap agreements and interest oncapital leases) for the five-year period ending December 31, 2012,were $40 million in 2008, $42 million in 2009, $50 million in 2010,$44 million in 2011, $418 million in 2012, and $1.5 billionthereafter.

included Excerpted from Southwest Airlines, Inc. 10-K for yearended 12/31/2007

2007 2006 inmillions

7 7/8 % Notes due2007 $- -

French Credit Agreements due2012 32 37

6 ½ % Notes due2012 386 369

5 ¼ % Notes due2014 352 336

5 ¾ % Notes due2016 300 300

5 1/8 % Notes due2017 311 300

French Credit Agreements2017 94 100

Pass ThroughCertificates 480 --

7 3/8 % Debentures due2027 103 100

Capital Leases (note8) 52 63

2110 1705

Less Currentmaturities 41 16

Less debt discount and issuancecosts 19 16

$ 2050 1567

Here is a copy of the credit report by Fitch Ratings, Ltd. atSouthwest’s $385 million, 6.5% note issuance, duein 2012:

Ratings

Maturity Date

Currency

Total Amount

Coupon Rate

Long-term

Short-term

CUSIP

ISIN

01-MAR-2012

USD

$385,000,000

6.5%

A

--

844741AV0

US844741AV08

Here is a price quote on those same Southwest notes atthe date of issuance:

Ratings

Ticker

Description

Coupon

Maturity

YTC/YTM

Price

Baa/A

LUV

Southwest Airls Co

6.500

03-01-2012

7.450

97.29

1-4. What is the value of these notes at the 2007 balance sheetdate? Read the excerpt from

Note 10.

Prior to 2007, the Company had entered into interest rate swapagreements relating to its $385 million 6.5% senior unsecured notesdue 2012 and… Under each of these interest rate swapagreements, the Company pays the London InterBank Offered Rate(LIBOR) plus a margin every six months on the notional amount ofthe debt [what amounts to the market price of thedebt], and receives payments based on the fixedstated rate of the notes every six months until the date the notesbecome due [this is why it is called aswap]. Under the agreement related to its$385 million 6.5% senior unsecured notes due 2012, the averagefloating rate paid during 2007 is estimated to be 7.31 percentbased on actual and forward rates at December 31, 2007.

The primary objective for the Company’s use of interest ratehedges is to reduce the volatility of net interest income by bettermatching the repricing of its assets and liabilities. The Company’sinterest rate swap agreements qualify as fair value hedges, asdefined by SFAS 133. The fair values of the interest rate swapagreements, which are adjusted regularly, are recorded in theConsolidated Balance Sheet, as necessary, with a correspondingadjustment to the carrying value of the long-term debt. The fairvalue of the interest rate swap agreements, excluding accruedinterest, at December 31, 2007, was an asset of approximately $16million and is recorded in “Other deferred liabilities” in theConsolidated Balance Sheet. In accordance with fair value hedging,the offsetting entry is an adjustment to increase the carryingvalue of long-term debt. See Note 7. [we will discuss theaccounting for fair value hedges (and cash flow hedges) inInternational Accounting]

1-5. So what has happened to the general trend of interest ratesbetween the date of issuance and the end of 2007? How can you tell?What was the market rate at issuance for notes of equivalentrisk?

1-6. Why might Southwest pay off these notes back beforematurity? What effect would a repurchase at the 12/31/07 marketrate (ignoring the interest rate swap) have on Southwest’s majorfinancial statements?

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