Group 3 - Michelle & Co.

BA 121 WFX
If you were asked to help this company, could you conclude from the evidence presented that
embezzlement took place? What would you do next?
Based on the case facts presented, we believe that an embezzlement occurred in the
company. Evidence of embezzlement showed (that cannot be caused by their computer) that there
was use of wrong stamps on the checks received, some sheets in the computer listing being ripped
apart at the bottom, and an employee who had access to both cash and the accounts receivable
records (records sales, records receipt of cash, and makes deposits).
After the incident, the company may opt to fire the culprit to prevent further fraudulent acts
from happening. Also, the company should go to the bank again to make clear of its instructions,
including no cashing out of company checks.
Who do you think was the embezzler?
The embezzler is most likely Debbie Jones. This is because the evidences or trails of fraud
lead to her. The holes in the system where the problem occurred is all within her scope of
responsibility which, in a proper internal control system, should not be the case.
How was the embezzlement accomplished?
It was done through Lapping. Debbie kept the payment from Sale 1 and used the payment
from Sale 2 to balance out the amount but then she forgot to dispose of the Sale 2 invoice, thus her
fraud was detected.
What improvements would you recommend in internal control to prevent this from happening
again?
Transaction​ ​Authorization​- Stamping must be properly authorized by upper management
and properly segregated from employees with different jobs.
Segregation of duties​- Recording sales and recording payments received should not be
assigned to people who also have custody to cash.
Supervision​- Company owners should have closely supervised the employees given that
the number of their employees is too small. Strict supervision could have ensured that there
is a segregation of duties among the employees.
Accounting records​- The accounting records should have back up copies. It is currently
maintained on one microcomputer, which, when tampered, can be a problem in the
safekeeping of the records. Also, invoices should be prenumbered to ensure the
completeness of recorded sales. Lastly, the company should adopt an integrated system.
This way, the company could immediately identify discrepancies such as a mismatch
between balances in the general and subsidiary ledgers.
Access Control ​- Access to the parts of the accounting system using passwords, electronic
access logs, and other measures in order to prevent unauthorized access and to keep track
of the activities of the users
Independent verification​- With regards to the use of weekly sales to verify accounting
records, the company should delegate its preparation to an employee that has a task not
related to recording (such as Tommy being in charge of shipping). This will ensure
independence of the weekly records and can be used to verify the accounting records.
Would the fact that the records were maintained on a microcomputer aid in this
embezzlement scheme?
Yes. The computer that they are using can be accessed and used by anyone, thus
everybody can modify the data and information recorded. With the lack of segregation of duties, it
would be hard to determine who has been using the computer for fraudulent acts.