BM2001

CASE ANALYSES: ABC COMPANY

Mr. A, the chief accountant of ABC Company, writes company checks or makes electronic payments to himself.
He then cooks the books to hide the theft. This classic embezzlement is made easier because ABC Company
uses a signature stamp of an executive’s signature. A signature stamp is literally like handing employees a
blank check because they can “sign” checks without your knowledge.

Required (2 items x 5 points):

1. Applying what you have learned, how can ABC catch or prevent this type of embezzlement? Justify
your answer.
To avoid and prevent future embezzlement the company should have following procedures in place. 1.
It is important to have regular bank reconciliations by someone that does not have other duties in the
payments area of the company. It is called separation of duties. The owner, manager or outsourced
agency should review statements for discrepancies before sending it to the bookkeeper. 2. It is
important to have physical control over cheque. The company can also employ cheque writing software
that can have certain controls over the production and recording of cheques to some extent, but even
physical control from a person not in that department is important.
3. Sometimes reconciling cheques that have cleared the bank account by showing the authorized
documentation may show cheques that were not properly authorized. This process should be outside
the usual bank reconciliation process as chances are that person that is committing fraud.
4. Separate responsibilities should be given to workers. Dividing financial responsibilities and preventing
one single person from gaining too much control over the company's finances can help reduce the risk.
For example, one worker may be given the duty of processing the checks and another may be given
the duty of reconciling the transactions and the third one maybe given the duty of approving the
documentation.
5. It is important for the company to require purchase orders or invoices for every payment.
6. The company should get rid of using a signature stamp or if at all it is suing it should be kept in a
secure place locked.

2. What company policy can be put into place?

Policies to be put in place by company are:
Create awareness about workplace fraud
Creating awareness in the company about fraud is important. By regularly conducting seminars/
meetings are a good way to educate employees about fraud and its consequences. This program should
be coordinated with the HR of the company or the labor law official who have good knowledge about the
same to ensure that the issue is communicated appropriately.

Write a bond on certain employees

Bond is like a cheap insurance in case any embezzlement take place. Moreover, informing employees
dealing with cash or check directly that the company will be bonding them will prevent them to take any
illegal step that can lead to fraud. Also, if someone really has made plans to indulge in fraud may either
change their plans or even change their jobs. thus, it will save companies from the fraud to happen.

Conduct random and regular audits.

Random and regular audits should be a part of the company operations and to do, list. By keeping regular
checks, the employee is aware of the fact that the company is highly attentive, and he won’t indulge in
any kind of fraudulent activity. Conduct background checks This is an important step as many a times
repeat offenders are the ones who have done something wrong in the past. It will also alert the employees
while going through background checks that they should not indulge in any kind of illegal activity.

Make fraud a Zero tolerance

Any kind of fraud should be made zero tolerant by the management and strict penalties to be imposed
on the offender, also the management should incorporate this zero-tolerance policy for new joiners during
their induction program and even get them signed that they will not commit any kind of fraud against the
company else they will be liable for strict punishment that can even lead to a crime where they may have
to go to a jail.

Incentives for the fraud catcher

 The company should encourage other team members and employees to detect any kid of suspicious
activity and report it to the management. They should be given a confidence that their names be withheld
if they report an incident. Also, the employee should be given rewards in the form of cash benefits in
case they reveal names of the people involved in the fraud That may act as a good motivator to
employees and possibly reduce fraud as everyone will be aware of the fact that everyone is under
observation and some kind of surveillance.

Rubric for grading:

CRITERIA PERFORMANCE INDICATOR POINTS
Content Provided pieces of evidence, supporting details, and factual scenarios 3
Organization Expressed the points in a clear and logical arrangement of ideas 2
of ideas
TOTAL 5

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