Samillano, Hans Uriel G.

4BSAccty-A
November 19, 2022

The abovementioned case regarding Leslie Epstein shows various red flags in the internal
control system set by the company. Based on the facts presented, the employee in XXX
Company is given the “opportunity”, a factor affecting the presence of fraud in which a person
has an authority to take control over some major operations of the firm that lets them commit
fraudulent activities. The first problem arises when the journal vouchers have not been
prenumbered due to errors and the task of numbering falls upon the hands of Leslie. This is an
issue as Leslie will be able to omit some vouchers for her personal gain especially those easily
manipulated such as the petty cash fund account, and she may record fictitious transactions as
there had been no other parties involved able to monitor her actions. Therefore, it is essential for
the company to assign another employee to monitor over the journal vouchers and to ensure that
each journal voucher is prenumbered to easily verify the transactions and improve the reliability
of the audit trail.
There is also a major flaw in the segregation of duties within the company as only one
employee is assigned to preparing journals vouchers and posting of accounts in the general
ledger. This may lead to a serious problem as the employee is given authority to exploit this
situation, for example: in a case where the salary of the employee relies upon the income of the
entity, such employee may overstate sales and understate expenses for the month to fully boost
their earnings. Thus, it is important for the company to employ another worker assigned to
posting of accounts in the general ledger.
Moreover, the company must find ways to improve supervision over employees assigned
to these functions. The management shall also reconsider their actions and implement plans to
better facilitate the segregation of duties; they shall also remove performance-based pay on these
functions to avoid motivating employees to manipulate the firm’s profit; and they must enhance
their IT systems to avoid errors especially in prenumbering of journal vouchers.