Starbucks Red Flags of Fraud Essay

2332 Words Apr 28th, 2013 10 Pages
Starbucks Coffee Company
Stephanie Deacon
Colorado Technical University Online: ACCT 320-1203A-01
Professor White
6 August 2012

Abstract This paper will provide an overview of Starbucks Coffee Company and identify seven red flags of possible fraudulent behavior within the organization. Steps to design a fraud prevention program will also be discussed based on the identified red flags.

Starbucks Coffee Company opened its first store in Seattle, Washington in 1971 offering fresh-roasted whole bean coffees. “Howard Schultz (Starbucks chairman, president and chief executive officer) joined Starbucks in 1982 as director of retail operations and marketing. Starbucks begins providing coffee to fine restaurants and
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Revenue recognition has a profound impact on a company’s income statement, and “not adhering to revenue recognition criteria could result in overstating revenue and net income in one reporting period and understating revenue and net income in a subsequent period” (Spiceland, Sepe, & Nelson, 2011, p. 30). “Typically, a senior executive who is inclined to “cook the books” possesses low ethical standards, though this trait may often be difficult to detect prior to the commission of a crime” (White Collar Crime Fighter, n.d.). Another red flag would be management unwilling to provide requested material to auditors, such as financial reports for fear they will uncover the fraud. The second area of concern for red flags of fraud would attribute to employee behavior. For instance, an employee who refuses to take vacation or sick time could be engaging in fraudulent activities. If an employee were embezzling from the company, “he would refuse vacation or promotion for fear of detection” (Hancox, n.d.). Additional red flags to watch out for with employee behavior changes would be borrowing money from co-workers, “excessive gambling or drinking, or bragging about significant new purchases” (Hancox, n.d.). High employee turnover is another indicator of potential fraud especially in an area of the organization that is more vulnerable to fraud such as payroll. High employee

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