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    Accounting Information Systems - Yola-170-171

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    This document discusses several examples of fraud and internal controls. It describes scenarios involving procurement fraud, expense account fraud, mail room fraud, and toll booth fraud. For each example, it asks what type of fraud it is, what controls could prevent or detect it, and how to improve segregation of duties. Maintaining proper separation of financial duties and implementing controls like authorization, supervision, and independent verification are important safeguards against occupational fraud.

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    Accounting Information Systems - Yola-170-171

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    dinda
    771 views2 pages
    This document discusses several examples of fraud and internal controls. It describes scenarios involving procurement fraud, expense account fraud, mail room fraud, and toll booth fraud. For each example, it asks what type of fraud it is, what controls could prevent or detect it, and how to improve segregation of duties. Maintaining proper separation of financial duties and implementing controls like authorization, supervision, and independent verification are important safeguards against occupational fraud.

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    This document discusses several examples of fraud and internal controls. It describes scenarios involving procurement fraud, expense account fraud, mail room fraud, and toll booth fraud. For each example, it asks what type of fraud it is, what controls could prevent or detect it, and how to improve segregation of duties. Maintaining proper separation of financial duties and implementing controls like authorization, supervision, and independent verification are important safeguards against occupational fraud.

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    © All Rights Reserved
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    771 views2 pages

    Accounting Information Systems - Yola-170-171

    Uploaded by

    dinda
    This document discusses several examples of fraud and internal controls. It describes scenarios involving procurement fraud, expense account fraud, mail room fraud, and toll booth fraud. For each example, it asks what type of fraud it is, what controls could prevent or detect it, and how to improve segregation of duties. Maintaining proper separation of financial duties and implementing controls like authorization, supervision, and independent verification are important safeguards against occupational fraud.

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    of 2

    CHAPTER 3 Ethics, Fraud, and Internal Control 141

    c. Cash Accounts Receivable a. transaction authorization.


    d. Sales Returns Accounts Receivable b. supervision.
    e. None of the above c. accounting records.
    5. Which of the following controls would best pre- d. independent verification.
    vent the lapping of accounts receivable? 8. Which of the following is often called a compen-
    a. Segregate duties so that the clerk responsible sating control?
    for recording in the accounts receivable subsid- a. transaction authorization
    iary ledger has no access to the general ledger.
    b. supervision
    b. Request that customers review their monthly
    c. accounting records
    statements and report any unrecorded cash
    payments. d. independent verification
    c. Require customers to send payments directly 9. Which of the following is NOT an element of the
    to the company’s bank. fraud triangle?
    d. Request that customers make checks payable a. ethics
    to the company. b. justifiable reliance
    6. Providing timely information about transactions in c. situational pressure
    sufficient detail to permit proper classification and d. opportunity
    financial reporting is an example of
    10. The fraud scheme that is similar to the ‘‘borrowing
    a. the control environment. from Peter to pay Paul’’ scheme is
    b. risk assessment. a. expense account fraud.
    c. information and communication. b. bribery.
    d. monitoring. c. lapping.
    7. Ensuring that all material transactions processed d. transaction fraud.
    by the information system are valid and in
    accordance with management’s objectives is an
    example of

    Problems
    1. FRAUD SCHEME he does not make a financial payment to the agent. If
    A purchasing agent for a home improvement center is the contractor does not cooperate, the contractor will be
    also part owner in a wholesale lumber company. The denied future work. Faced with a threat of economic
    agent has sole discretion in selecting vendors for the loss, the contractor makes the payment.
    lumber sold through the center. The agent directs a dis- Required
    proportionate number of purchase orders to his com- What type of fraud is this and what controls can be
    pany, which charges above-market prices for its implemented to prevent or detect the fraud?
    products. The agent’s financial interest in the supplier is
    unknown to his employer.
    Required 3. MAIL ROOM FRAUD AND
    What type of fraud is this and what controls can be INTERNAL CONTROL
    implemented to prevent or detect the fraud? Sarat Sethi, a professional criminal, took a job as a mail
    room clerk at Benson & Abernathy and Company, a
    large department store. The mail room was an extremely
    2. FRAUD SCHEME hectic work environment consisting of a supervisor and
    A procurement agent for a large metropolitan building 45 clerks. The clerks were responsible for handling pro-
    authority threatens to blacklist a building contractor if motional mailings, catalogs, and interoffice mail, as
    142 PART I Overview of Accounting Information Systems

    well as receiving and distributing a wide range of out- c. Posting of amounts from both the cash receipts and
    side correspondence to various internal departments. the cash disbursements journals to the general
    One of Sethi’s jobs was to open cash receipts envelopes ledger.
    from customers making payments on their credit card d. Writing checks to vendors and posting to the cash
    balances. He separated the remittance advices (the bills) account.
    and the checks into two piles. He then sent remittance e. Recording cash receipts in the journal and preparing
    advices to the accounts receivable department, where the bank reconciliation.
    the customer accounts were updated to reflect the pay-
    ment. He sent the checks to the cash receipts depart-
    ment, where they were recorded in the cash journal and
    then deposited in the bank. Batch totals of cash received 5. EXPENSE ACCOUNT FRAUD
    and accounts receivable updated were reconciled each While auditing the financial statements of Petty Corpo-
    night to ensure that everything was accounted for. ration, the certified public accounting firm of Trueblue
    Nevertheless, over a one-month period Sethi managed and Smith discovered that its client’s legal expense
    to steal $100,000 in customer payments and then left account was abnormally high. Further investigation of
    the state without warning. the records indicated the following:
    The fraud occurred as follows: Because the name of
    the company was rather long, some people had adopted  Since the beginning of the year, several
    the habit of making out checks simply to Benson. Sethi disbursements totaling $15,000 had been
    had a false identification prepared in the name of John made to the law firm of Swindle, Fox, and Kreip.
    Benson. Whenever he came across a check made out to  Swindle, Fox, and Kreip were not Petty Corpora-
    Benson, he would steal it along with the remittance tion’s attorneys.
    advice. Sometimes people would even leave the payee  A review of the canceled checks showed that they
    section on the check blank. He also stole these checks. had been written and approved by Mary Boghas, the
    He would then modify the checks to make them payable cash disbursements clerk.
    to J. Benson and cash them. Because the accounts re-  Boghas’s other duties included performing the end-
    ceivable department received no remittance advice, the of-month bank reconciliation.
    end-of-day reconciliation with cash received disclosed
     Subsequent investigation revealed that Swindle, Fox,
    no discrepancies.
    and Kreip are representing Mary Boghas in an unre-
    lated embezzlement case in which she is the defen-
    Required dant. The checks had been written in payment of her
    a. This seems like a foolproof scheme. Why did Sethi personal legal fees.
    limit himself to only one month’s activity before
    leaving town?
    b. What controls could Benson & Abernathy Required
    implement to prevent this from happening a. What control procedures could Petty Corporation
    again? have employed to prevent this unauthorized
    use of cash? Classify each control procedure in
    accordance with the SAS 78/COSO framework
    (authorization, segregation of functions, supervision,
    4. SEGREGATION OF DUTIES and so on).
    Explain why each of the following combinations of b. Comment on the ethical issues in this case.
    tasks should or should not be separated to achieve
    adequate internal control.
    a. Approval of bad debt write-offs and the reconcilia-
    tion of the accounts receivable subsidiary ledger and 6. TOLLBOOTH FRAUD
    the general ledger control account. Collectors at Tollbooths A and B (see figure on next
    b. Distribution of payroll checks to employees and ap- page) have colluded to perpetrate a fraud. Each day,
    proval of employee time cards. Tollbooth Collector B provides A with a number of toll

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