Question

Various Types of Forensic and Non-forensic Audits

Case 1

Jacob Kent is the general manager of a large locally-owned garden center in Columbus. The store has four departments, each with its own department manager.

Each department has its own sales counter, and two salespersons are assigned to each counter. The salesperson enters his or her own PIN for each transaction. At the end of the day, the manager in each department totals the department’s sales, retrieves the cash and checks from the register, and prepares a deposit slip for the general manager to review and sign. The general manager re-checks the cash count and then signs the deposit slips and accounting documents.

When the general manager receives the cash receipts from all departments, he prepares a sales report and sends it to the store’s controller. The controller counts the money and signs three copies of the sales report. One copy is for her, one copy goes to the store accountant, and the final copy goes to the store manager. The controller then puts all the cash into the safe until it is picked up for delivery to the bank.

The store accountant reconciles copies of sales reports with bank deposit slips and the bank statement.

Jacob has a long relationship with the bank. The bank just called to suggest that he checks into some customers' checks that had recently been returned for non-sufficient funds. According to the bank, some of the payers had written bad checks to other local businesses.

The bank suggested that the garden center may have an employee working against it. A police investigator told the bank that in similar cases an insider is involved.

1.What possible check fraud schemes might the company be a victim of? What control processes could be implemented to detect and deter them?

2.Given the store’s procedures for processing cash receipts, which store employees might be in a position to participate in a check fraud scheme?

Answer 1

1. What possible check fraud schemes might the company be a victim of?

Fraud essentially involves an act or acts of deception to dishonestly make a personal gain for oneself and/or create a loss for another, either in cash or kind or by avoiding an obligation.

The fraudster has:

An intention to deceive, and

An objective to influence the victim’s decisions or actions.

Whether the fraudulent act involves a member of staff (or a relative), acting alone or in collusion with a third party (internal fraud) or merely any third party (external fraud)

Possible fraud which company be a victim of

Theft, embezzlement, forgery, misappropriation and money laundering.

1. There might be collusion among employees and outsider (third party) who act as customer and render bad checks to the company.
2. There may be a leading and lagging fraud by middle or top manager.

(in this one particular sales of a particular month hides and offset with next month reporting the same and get new one hide)

1. Accepting or paying cash or check more than the limit authorized by the audit committee may be an indication of possible fraud.
2. Protecting a particular customer or buyer or vendors may be an early indication of possible fraud involvement.

What control processes could be implemented to detect and deter them?

Below is the possible controls which should be implemented to detect and prevent the fraud.

1. Rotation of employees within and across the department at a particular interval.
2. Internal checks to be built in to the stand operating procedure whereby frauds might get early detected.
3. Authorizing the limit upto which cash can be accepted or paid for any transactions.
4. Random visit by audit team to the stores.
5. Ensured to establish a process into which there must be one or two weeks lead time for shipment when you get any checks or advances.
6. Get the bank verified document of customers and vendors.
7. Promote and recognize the ombudsman within the company and reward them to create a good culture within the organization.

2. Given the store’s procedures for processing cash receipts, which store employees might be in a position to participate in a check fraud scheme?

In given stores procedure below is the employees might be involved and participate into Check fraud scheme.

1. Stores sales manager may have a moderate level of involvement.
2. Manager of the stores may have a greater chance of involvement.
3. General manager in collusion with manager and in isolated