Something Was Rotten At Garden Fresh: Tax Evasion And Accounting Fraud At A Produce Wholesaler

Abstract

Most fraud cases prepared for use in auditing and fraud examination courses involve theft-of-asset or financial statement misstatement types of frauds.  Based on an actual case, we present a situation where the owner of a wholesale produce business, Garden Fresh, adjusted accounting records to evade taxes.  Changes in the produce industry were threatening Garden Fresh’s business, and the owner used funds generated from the tax-evasion fraud to support purchases from the company’s buyers.  In the end, the fraud and business could not be sustained, and Garden Fresh failed.  An important learning objective of the case is to illustrate how journal entries can be used to conceal a fraud, and how understanding accounting is essential for uncovering some frauds.  The Garden Fresh case has been used in an undergraduate auditing class, and assessment results indicate that the case is effective for meeting identified learning objectives.  The case would also be appropriate for use in taxation, fraud examination, forensic accounting, and small business courses at both the undergraduate and graduate levels.