Homework answers / question archive / CHAPTER 5: In his own words, Daniel Jones was “The Dude

CHAPTER 5: In his own words, Daniel Jones was “The Dude

Management

Share With

---

CHAPTER 5:

In his own words, Daniel Jones was “The Dude.” With his waist-long dreadlocks, part-time rock band, and well-paid job managing a company’s online search directory—he seemed to have it all. Originally from Germany, Jones, now age 32, earned his doctorate and taught at the University of Munich before coming to the United States, where he started his career in computers. When Jones started working with the company as a director of operations for U.S.-Speech Engineering Service and Retrieval Technology—he was assigned to work on a new, closely guarded search engine tied to the company’s .net concept.

The company allows employees to order an unlimited amount of software and hardware, at no cost, for business purposes. In one year’s time, Jones ordered or used his assistant and other employees (including a high school intern) to order nearly 1,700 pieces of software which had very low cost but were worth a lot on the street. He then resold them for reduced prices— reaping millions. When items with a cost of goods sold of more than $1,000 are ordered, an e-mail is sent to the employee’s direct supervisor, who must click on an “Approve” button before the order is filled. In no individual order was the cost of goods more than $1,000—he made sure none of the orders required a supervisor’s approval. The loosely controlled internal ordering system reflects the trust the company puts in its employees.

During this time frame, FBI agents said they saw Jones exchanging a large box of software for cash in a department store parking lot. The FBI contacted the company’s security and began monitoring Jones’s bank accounts. Previously, one account with his bank had an average balance of $2,159. In a short time, however, the average balance ballooned to $129,775. Another account at another bank showed irregular deposits totaling $500,000—none of which appeared to be from any legitimate income or other source.

Investigators also noted that Jones purchased a Ferrari, a Jaguar, and traded in lesser vehicles for a Hummer, a Mercedes, and a Harley-Davidson motorcycle. He also bought an $8,000 platinum diamond ring, a $2,230 wristwatch, and a $4,000 bracelet. “You figured that I like big boy’s toys by looking at some of my pictures,” Jones wrote on his personal Web page. “I just can’t resist.” The Dude’s Web page includes a camera for monitoring his cat and photos of his yacht, cars, and other treasures. For a relatively low-level manager, it was an impressive collection. But at his company, where teenage software engineers can earn more than company directors, no one noticed anything unusual.

A neighbor across the street from Jones said that he was clearly wealthy, but not flamboyant with his money. He described Jones as an intelligent man who didn’t flaunt his education, would loan neighbors tools, and was always friendly. The neighbor was surprised to hear the accusations against someone he called his friend. All he knew about Jones was that he was a good neighbor who loved cars. “He was very, very helpful. The few times I had problems with my PC, he’d come and help straighten them out,” the neighbor said. “They are just ideal neighbors. I feel terrible for him and his wife.” Jones and his wife lived in a modest home.

Jones also joined the city’s Rotary Club, “where he seemed more outgoing and personable than the stereotype techie,” said a local jeweler and immediate past president of the club. “He seemed like what I would expect a genius software developer to be.” Eventually, the fraud was discovered and Jones was fired. He was also charged with 15 counts of wire, mail, and computer fraud—with each count carrying a maximum of fives years in prison. He is expected to remain in custody until his preliminary hearing.

Questions:

1. Describe the symptoms of fraud that might be evident to a fellow employee.

2. Recently, his employer has been putting more emphasis on controlling costs. With the slowing of overall technology spending, executives have ordered managers to closely monitor expenses and have given vice presidents greater responsibility for balance sheets. What positive or negative consequences might this pose to the company in future fraud prevention?

3. As discussed previously, all frauds involve the following key elements: perceived pressure, perceived opportunity, and rationalization. Describe two of the key elements of the Jones fraud— pressure and opportunity.

4. From the scenario, what measures has the company taken to prevent fraud? In what ways could the company improve?

 

CHAPTER 6: 

Chapter 6 discusses the fascinating theory called 'Benford's Law'. To see if Benford's Law has merit, I experimented with the following data. You can find the results in the following spreadsheets. 

 

Benford's Law Experiments

Please find your own data set to experiment on. (Feel free to use my spreadsheets as a model.)

Share your thoughts regarding this method of fraud detection. Did your experiment match Benford's predictions?

Please attach your sample data and results.

(By the way, this website tests Benford's Law on many datasets: http://testingbenfordslaw.com/)

 

Chapter 7

Jim is the owner and president of ZZZ Company. He and his close friend, Dan, graduated with MBAs. They always dreamed about being successful and making lots of money. They have worked in the same company for years, working their way up to senior management and eventually senior executive roles. ZZZ Company has been a success the entire time that Jim and Dan have worked for the company. Stock prices have increased every year, and revenues have grown by a compounded rate of 20 percent per year. Jim is becoming a little suspicious of the company’s results because the earnings per share are always equal to Wall Street’s projections. In the past couple of years, Jim has noticed that his friend’s personal life has become troubled. Dan has gotten a divorce and is continually struggling financially, even though Jim knows that Dan is making plenty of money to cover his bills. One night, Jim stopped by the office to respond to some e-mails he could not get to during the day. He noticed that Dan was working late as well. Dan was the CEO, and Jim just assumed that he was working late because it was close to the end of the quarter. However, after reviewing the quarter’s results, Jim is suspicious again because the results are exactly equal to Wall Street’s forecasts. Jim decides he needs to begin an investigation into financial reporting practices.

Question: What issues must Jim consider in deciding how to investigate the financial results of the company?

 

CHAPTER 8:

An excerpt from the Fourth Amendment reads: “The right of the people to be secure in their persons, houses, papers, and effects, against unreasonable searches and seizures, shall not be violated, and no Warrants shall issue, but upon probable cause, supported by Oath or affirmation, and particularly describing the place to be searched, and the persons or things to be seized.”

Suspecting a Mr. Flammer of running an illegal gambling and loan sharking operation, the FBI obtained a federal search warrant. The FBI entered the residence of Mr. Flammer and searched through various records. Suspecting most of the records were contained on a personal computer, the FBI began attempting to access the computer’s various files.

Unable to access the needed files because of password barriers, the FBI installed a system known as a key logger system (KLS). This system was able to determine the keystrokes made on a computer and thus allowed the FBI to discover the password needed to enter the incriminating files. The discovery led to the gathering of evidence linking Mr. Flammer to the suspected illegal operation

Question: Were Mr. Flammer’s Fourth Amendment rights violated?

CHAPTER 9:

Steve (Slick) Willy, 45, just got out of jail. As a reformed citizen on parole, Slick decides to go into business for himself. He starts a collections company to help companies collect debts. The terms of his parole stipulate that he pay restitution payments to the federal government of $400 a month, or 10 percent of his income, whichever is greater. As his parole officer, you notice that after a year out of jail, Slick makes some interesting purchases. First, he buys a new Jaguar, which he drives to parole meetings.

Second, he moves into an expensive neighborhood on the north side of town and takes a cruise to Jamaica with his 19-year-old girlfriend. Yet, he has never been late making his $400 monthly payments to the federal government. After obtaining a subpoena for his bank records, you notice that he has only $1,000 in his account. About this time, you receive a call from a man who is making payments to Slick’s collection company. He states that Slick is threatening to break his legs and hurt his family if he doesn’t pay Slick’s company. The man says Slick demands the checks be made out to a woman, not a company.

This complaint convinces you to investigate Mr. Willy and his girlfriend. A search of UCC filings in the county shows that Slick’s girlfriend owns three cars costing a total of $85,000, a $360,000 house, and a company called Tak’It From You. You check her bank account and see that more than $45,000 is moving through the account each month. You decide to dig through Slick and his girlfriend’s trash a few times each month. In these searches, you find evidence that supports the following: three car payments totaling $2,000 per month; a $2,600 monthly mortgage payment; a credit card balance of $6,500, with $200 monthly payments; a balance of $13,500 owed to Home Shopping Network, with $600 monthly payments; $350 food payments during the past two weeks; and a $3,650 payment to Jamaican Cruise Lines. After searching the girlfriend’s trash, you talk to her neighbors, friends, and co-workers and determine that she and Slick spend between $1,500 and $2,500 a month on miscellaneous items and trips. One neighbor tells you that Slick just gave his girlfriend a diamond ring that cost $4,500. Slick’s girlfriend works as a waitress at a small restaurant and makes only $16,500 a year. (Note: Assume that both Slick and his girlfriend’s net worth last year were zero.)

Question: Use this information to prepare a net worth analysis of Slick’s girlfriend. (Ignore interest in your calculations.)