Question

In: Accounting

Credit memos are created when a product is returned. Credit memos reduce A/R (accounts receivable) by...

Credit memos are created when a product is returned. Credit memos reduce A/R (accounts receivable) by crediting the account, and it writes off the invoice. This also records a debit to the Sales Returns and Allowances account.

You have noticed that the A/R clerk has created an abnormally high number of credit memos. You also notice the inventory does not reflect the additional inventory resulting from the sales returns and allowances.

Respond to the following in a minimum of 175 words:

  • What would you do, and how would you document your decision?

Solutions

Expert Solution

Answer. The above activity leads to Fraud.

Following can be done to prevent fraud:

Step one: Stop the fraud continuing

The first thing to do when a fraud it committed is to stop it continuing. This involves:

This involves:

• blocking or reducing access to electronic and other information or resources being used to commit the fraud, including blocking remote access

• if the employee has been using a computer, ensuring that the computer is isolated and no one else touches it. Forensic IT should be brought in to recover anything that has been deleted from the hard disk. In addition, email lists are often helpful in preparing evidence.

Backups can be useful during this process

• identifying other computers/equipment the employee may have used, and isolate these computers as well (even if it is another employee’s computer).

Step two: Collect the facts

The second step to take after a fraud is detected is to make sure you collect as many facts as possible before you approach the employee. The employee may actually admit to committing the fraud once they learn you know what has been going on. Ensure that you speak to the fraudster’s work colleagues. Often where a senior executive is involved in a fraud, their personal assistant has known about it but was unwilling to get involved. Employees need to know that they can safely discuss what they know.

Step three: Discuss the issue with the employee

The third step to take after a fraud is detected is to discuss the issue with the employee. However, you should be very careful and approach such conversations with a clear head. You may wish to seek legal advice before having the conversation or have your lawyer present to make sure it is done the right way.

Step four: Either ask the employee to pay for damages and leave the organization or report the matter to police.


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