Minos Brezhnev, an immigrant from Ukraine, is a hotel owner in Las Vegas. Since his arrival in America during the 1960s, Brezhnev has built a very successful and popular hotel. Until recently, the hotel averaged $20 million in total revenue per year. Lately though, there have been rumors that Brezhnev’s hotel, the Russian Ruble, may be suffering unusual losses. Recently, several of Brezhnev’s key staff have quit, complaining about low wages and nonexistent benefits. In fact, the hotel’s main attraction, its popular restaurant chef Alec Torenko, quit as well as the hotel’s headlining performer. While Brezhnev focused on coming up with a new compensation policy, he hired CPA Bob Slider to look into the hotel’s diminishing cash flows. The first thing Bob did was head for the kitchen to partake of the award-winning food. The new chef, Calvin Crapes, wasn’t what Bob expected. First of all, he wasn’t Russian, as most of the employees seemed to be, and second he refused to talk about why he had come to the Russian Ruble when so many wanted to leave.
After his visit to the kitchen, Bob began sifting through the accounting documentation looking for possible fraud symptoms. Bob reasoned that if employees felt like they weren’t being compensated accordingly, they may be apt to defraud the hotel.
In addition to the above, the hotel had recently changed a number of its usual vendors.
- The new chef Calvin, switched the food supplier contract to Supreme Meats
- Linens were now being cleaned by Supreme Laundry
- Supplies to the gift shop were being delivered by Supreme Gift
- Cars were being parked by Supreme Valets.
- Running a quick business check, Bob found all these “supreme” companies were run by Calvin’s brother-in-law, Steve.
Using both the required text and external resources, address each of the questions below. Your responses should range between 2-4 strong paragraphs for each question, with references appropriately cited. Visuals (tables, charts, graphs) are encouraged as a tool in summarizing major points.
- Could Bob be right? Are employees defrauding the company, or has the Russian Ruble finally at the end of its success?
- What possible fraud activities are associated with declining cash flows?