Switch Watches & Clock Fraud Case CASE REQUIREMENTS 1 One factor of the internal control environment when investigating fraud is “integrity and ethical values.” In what ways were integrity and ethical values slighted by Sheldon? Support your answer with evidence from the case study in this situation. 2 Describe the investigative techniques used by the forensic team to uncover the fraud. Evaluate the success of these techniques, and outline two additional measures that could have been undertaken. 3 The fraud at Switch is one of many major financial statement frauds that have occurred in recent years. Describe five factor that could explain why the falsifying of financial statements is occurring so frequently. 4 Apply the fraud triangle to this case. Speculate on the motivation/pressures, opportunity, and rationalization of Sheldon. 5 Evaluate and comment on the Board’s behaviour. Include in your evaluation the responsibility of the Board with regards to internal controls. ●●●Sheldon's entire existence and self-worth hinged on the successes andfailures at Switch. He never married and routinely worked 15-hour days. Theemployees joked that he secretly lived at the corporate office. No matter how earlythey arrived or how late they left, Sheldon Cooper was there. In the few hours hewas not at work, he managed to cultivate expensive hobbies and tastes. It was alsoimportant to him to demonstrate his success with flashy vehicles, homes, andartwork. He lived in the most exclusive neighbourhood in Toronto and drove acandy-apple-red Ferrari. In fact, Sheldon frequently sped off to Caesars Casino togamble with customers. He was known as a high roller.Switch began in 1922 in a Toronto basement workshop of a Swissimmigrant, Howard Wolowitz. Howard worked full time during the day as abutcher but came home each night to tinker with his collection of clocks. Wordspread regarding Howard's fascination with clocks and his skill in their repair.Eventually he had so many people requesting his services that he decided to quithis job and open Switch Watches & Clock. The choice of name was similar to afamous watch brand in Switzerland. But in the 1950s, he and his son, Stuart,decided to expand the company. They became Switch Watches & Clock Industries.To keep up with the ever-increasing demand, they built a state-of-the-art facilityto assemble and package their timepieces. After Howard retired, Stuart, anenergetic 28-year-old, took over the helm.Stuart was less of a craftsman than his father but had a keen sense forbusiness. He decided to bolster the company's employee time clock business. Thisstrategy paid off with the burgeoning industrial economy and increased focus onmechanization. Sales at Switch Industries grew to record levels. After being in thebusiness for years, Stuart took note of an ambitious employee named SheldonCooper who had distinguished himself in the factory and was working towardbecoming a manager. Stuart developed a mentoring relationship with Sheldon,knowing that someday, he would be the leader of Switch Industries.2 ●●●Switch Watches & Clock Fraud CaseSheldon Cooper was a strange character, perhaps more comfortable in auniversity setting than a boardroom meeting. Starting out as an 18-year-old highschool graduate, he worked his way up from the assembly floor of SwitchIndustries, a manufacturer of watches and clocks. Sheldon's job was to ensure thatthe company's name and the product registration number were affixed to thebottom of each assembled timepiece. He took great pride in his role at Switch butyearned for the day when he could assume a management position.Sheldon realized that if he wanted to be successful, he would need a collegeeducation, so he enrolled in a local university. After Sheldon received his bachelor'sdegree in accounting, he informed Switch administration and asked to beconsidered for the management training program. Shortly thereafter, a positionopened in the Purchasing Department for an accounts payable clerk. Sheldonjumped at the opportunity, and his ascension began.Rising through the ranks, he took on roles with increasing responsibility.Sheldon worked in nearly all areas of the Accounting Department, includingpayroll, receivables, cash management, and financial reporting. He also had aleadership role in the development and implementation of the new computersystems for inventory management and accounting.By the time Sheldon was promoted to chief executive officer (CEO), his tenure withthe company exceeded 25 years. He knew virtually every detail about SwitchIndustries. But his meteoric rise left him with few allies. When Sheldon walkedinto a room, conversation ceased. Employees scattered to avoid confrontations withhim, mainly because he believed in management by intimidation. He frequentlymade unreasonable demands and set unattainable goals.1

Question

Switch Watches & Clock Fraud Case CASE REQUIREMENTS 1 One factor of the internal control environment when investigating fraud is “integrity and ethical values.” In what ways were integrity and ethical values slighted by Sheldon? Support your answer with evidence from the case study in this situation. 2 Describe the investigative techniques used by the forensic team to uncover the fraud. Evaluate the success of these techniques, and outline two additional measures that could have been undertaken.  3 The fraud at Switch is one of many major financial statement frauds that have occurred in recent years. Describe five factor that could explain why the falsifying of financial statements is occurring so frequently. 4 Apply the fraud triangle to this case. Speculate on the motivation/pressures, opportunity, and rationalization of Sheldon.  5 Evaluate and comment on the Board’s behaviour. Include in your evaluation the responsibility of the Board with regards to internal controls. ●●●Sheldon's entire existence and self-worth hinged on the successes andfailures at Switch. He never married and routinely worked 15-hour days. Theemployees joked that he secretly lived at the corporate office. No matter how earlythey arrived or how late they left, Sheldon Cooper was there. In the few hours hewas not at work, he managed to cultivate expensive hobbies and tastes. It was alsoimportant to him to demonstrate his success with flashy vehicles, homes, andartwork. He lived in the most exclusive neighbourhood in Toronto and drove acandy-apple-red Ferrari. In fact, Sheldon frequently sped off to Caesars Casino togamble with customers. He was known as a high roller.Switch began in 1922 in a Toronto basement workshop of a Swissimmigrant, Howard Wolowitz. Howard worked full time during the day as abutcher but came home each night to tinker with his collection of clocks. Wordspread regarding Howard's fascination with clocks and his skill in their repair.Eventually he had so many people requesting his services that he decided to quithis job and open Switch Watches & Clock. The choice of name was similar to afamous watch brand in Switzerland. But in the 1950s, he and his son, Stuart,decided to expand the company. They became Switch Watches & Clock Industries.To keep up with the ever-increasing demand, they built a state-of-the-art facilityto assemble and package their timepieces. After Howard retired, Stuart, anenergetic 28-year-old, took over the helm.Stuart was less of a craftsman than his father but had a keen sense forbusiness. He decided to bolster the company's employee time clock business. Thisstrategy paid off with the burgeoning industrial economy and increased focus onmechanization. Sales at Switch Industries grew to record levels. After being in thebusiness for years, Stuart took note of an ambitious employee named SheldonCooper who had distinguished himself in the factory and was working towardbecoming a manager. Stuart developed a mentoring relationship with Sheldon,knowing that someday, he would be the leader of Switch Industries.2 ●●●Switch Watches & Clock Fraud CaseSheldon Cooper was a strange character, perhaps more comfortable in auniversity setting than a boardroom meeting. Starting out as an 18-year-old highschool graduate, he worked his way up from the assembly floor of SwitchIndustries, a manufacturer of watches and clocks. Sheldon's job was to ensure thatthe company's name and the product registration number were affixed to thebottom of each assembled timepiece. He took great pride in his role at Switch butyearned for the day when he could assume a management position.Sheldon realized that if he wanted to be successful, he would need a collegeeducation, so he enrolled in a local university. After Sheldon received his bachelor'sdegree in accounting, he informed Switch administration and asked to beconsidered for the management training program. Shortly thereafter, a positionopened in the Purchasing Department for an accounts payable clerk. Sheldonjumped at the opportunity, and his ascension began.Rising through the ranks, he took on roles with increasing responsibility.Sheldon worked in nearly all areas of the Accounting Department, includingpayroll, receivables, cash management, and financial reporting. He also had aleadership role in the development and implementation of the new computersystems for inventory management and accounting.By the time Sheldon was promoted to chief executive officer (CEO), his tenure withthe company exceeded 25 years. He knew virtually every detail about SwitchIndustries. But his meteoric rise left him with few allies. When Sheldon walkedinto a room, conversation ceased. Employees scattered to avoid confrontations withhim, mainly because he believed in management by intimidation. He frequentlymade unreasonable demands and set unattainable goals.1

Accepted Answer

The Switch Watches & Clock Fraud Case is a classic example of how integrity and ethical values…