Question

Background:  As a district sales representative for a medical supplies vendor, "Mark Price" sold medical supplies directly to doctors at local hospitals.  

1. Identify the internal control(s) involved for each activity.

2. Describe the internal control you would implement to prevent the fraudulent activity from occurring in the future.

Mark's Activities

a. Mark had a falling-out with his employer and was fired.

Internal Control:

Description of new control:

b. Mark continued to work with his district hospitals as if he were still a representative of the vendor, while his former employer searched for a new sales rep. Mark hand-delivered false invoices printed on stationery he had kept after his termination.

Internal Control:

Description of new control:

c. One hospital refused to pay the false invoices because receipt of the invoiced items could not be verified.

What voucher system document controls were in place at this hospital?

d. Another hospital paid the false invoices, giving the checks directly to Mark when he met them at his usual time, rather than mailing the checks to the supplier.

Internal Control:

Description of new control:

e. Mark endorsed the hospital checks with the name of his former company's cashier and used a "For deposit only" stamp purchased at a local office supply store to stamp each check. He deposited the checks into his personal bank account.

Internal Control:

Description of new control:

Answer 1

A. Internal control : removal of employees as and when they cause any problem to company.

Description of new control : after being removed from employment the company should make a public statement on reasons for removal and other facts for not having any future misconceptions about his association with the organization.

B.internal control : The organization is looking to make a replacement as early as possible

Description of new control : The organization should handover all the belongings of organization that residing with the employee after his removal.A public statement must be issued stating the fact that the employee is no more part of the organization

C.A proper invoice carries details such as date,invoice number,purchase order details,date of placement of order,seller company name,registered office address,contact details,registration details with government under different tax laws,item description as per purchase order,accurate amounts,proper signature of the authority.

The hospital is strictly looking for all the necessary details to be mentioned on a proper invoice.

D.Internal control : no strict rules are being followed for making payment directly to organization.

Description of new control : the hospital must get an authorization letter from supplier organization to give checks by hand to employee.

E.Internal control : The organization is not having any mechanism over payment receipts scheduling.

Description of new control : The amount must be received through account transfer only.