Write 4-5 pages in response to the items listed for each of the three case studies included in this assessment.
Introduction
Was it possible in 2001 to learn from previous financial scandals so they would not happen again? The answer then was probably not. We need to look no further than “The Pros & the Cons,” a speakers’ bureau that employs experts and ex-convicts to help companies avoid and detect fraud. Perhaps you will remember Frank Abagnale, the subject of the movie Catch Me if You Can. The purpose of the Sarbanes-Oxley Act of 2002 (SOX) was to shelter investors from financial crimes and provide them with greater confidence in American corporations. SOX helps these investors rely on financial statement information as an accurate representation of the financial condition of the organizations in which they are shareholders.
We often associate tax fraud with tax evasion, a term familiar to many taxpaying Americans. Why do even the most scrupulous American taxpayers dabble in this risky game of hide-and-seek? Consider greed to satisfy a person’s lust for money as well as the risk of trying to cheat the taxman at the local, state, and federal levels. More often than not, the biggest scammers don’t get away with taking advantage of the system.
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.
What possible check fraud schemes might the company be a victim of? What control processes could be implemented to detect and deter them?
Given the store’s procedures for processing cash receipts, which store employees might be in a position to participate in a check fraud scheme?
Case 2
Heather Lockard is the CFO of the Keel Company in Fort Lauderdale, Florida. The company is a privately-held manufacturer of custom recreational vehicles with about 175 workers (engineers, vehicle designers, mechanics, and so on), and nine employees in its main office. Heather’s primary responsibility is to prepare the financial statements. Two full-time accountants work for her. She follows GAAP in most cases, but she sometimes deviates from GAAP when she thinks it does not lead to what she considers to be the best financial results for the family members who own the company.
For many years, the company was owned by three cousins. All three cousins were on the board of directors. One of the three, Yvonne Keel, was the CEO during that period. The other two cousins were less involved with the company.
