GROUP 10

AUDITING AND MANAGEMENT CONTROL ALESSANDRO CIACCHERI

ALICE SANTILONI
A.Y. 2021/2022 
DARIO GRAZIAN
GIUSEPPE D'ONZA
ROMINA RAKIPI
 Case description
Adam works as an outside sales representative for the local hardware store. After an initial success with a corporate client: ‘Big Builder’,
sales have been dramatically decreasing.

The situation culminated in Adam losing a bid to a competitor, resulting in Big Builder closing an unfavorable deal.
Having Adam noticed that an unknown buyer had recently purchased an identical stock to the one in the bid, he decided to contact Big
Builder executives.

After discussing the current state of things with Big Builder, he lets Big Builder’s president know what happened with the order in question.
Checking the invoices, the director confirms Adam’s suspicion, further noticing that the overpaid order was carried out through a third
party known as K.A. Supplies.
Subsequently, Adam went to the county courthouse and inquired about K.A. Supplies, finding out that one of the purchasing agents for
Big builder is listed as an officer.

The fraudulent activity hypothesis

The case is most likely linked to embezzlement, perpetrated by one of Big Builders’ purchasing agents.

The aim of the presentation

Our purpose is to shed a light on the case and suggest potential implementations to enhance control and auditing
measures for Big Builder.

CASE 10 – A.Y. 2021/2022 AUDITING AND MANAGEMENT CONTROL – GIUSEPPE D’ONZA, ROMINA RAKIPI
 Gathering more information
Screening K.A. Supplies publicly available information
Obtaining information regarding K.A. Supplies could help Big Builder identify: 
• Whether the company was recently set up only for fraud-related purposes. 
• The extent of the workforce being simultaneously employed in both companies. The information may be easily
retrievable for the board of directors’ participants, more difficult for non-executives employees.
• Ensure that no employee of Adam’s local hardware store is linked to K.A. Supplies

Reviewing past invoices of the local hardware store

While the fraud has been perpetrated to the detriment of Big Builder, it is likely that a local hardware store’s employee is benefitting
from the sale, at retail price, of items to K.A. Supplies. 
A review of past purchase orders by either Adam or whoever is assigned to do so by the local hardware store should help clarify if any
ties between the two companies’ workforce exist. 

Tracing back invoices to verify the timespan of fraudelent activities

Given the fact that the fraud was recently discovered, it is likely to have been carried out in other instances during the past.
Thoroughly checking previous purchase orders could provide Big Builder with the necessary insights to evaluate the width of the
fraudulent acts.

CASE 10 – A.Y. 2021/2022 AUDITING AND MANAGEMENT CONTROL – GIUSEPPE D’ONZA, ROMINA RAKIPI
 Auditing and control measures to be implemented

Severe penalties and corrective measures for illicit acts

To deter both Big Builder and local hardware store employees from committing illicit activities, implementation of
extreme policies is needed. They may range from formal notices to termination.

Carrying out a background check everytime a new supplier is added to the database
When a supplier is added, Big Builder’s employees should conduct a research and investigate its nature, legal entity and workforce.
Letting a second employee verify the validity of the assessment is strongly advisable.

Internal control activities and employee monitoring

The possibility of being detected by a control activity can be an effective deterrent to a potential fraudster. Recurrent and persistent
controls must be conducted on the purchasing transactions, to ensure the overall fairness and regularity of the process. When controls
are missing, the ways and means for theft may become obvious to the perpetrator. 

Segregation of duties and appropriate responsabilities

Proper separation of duties and responsibilities can prevent fraudulent actions. A person who is allowed to perform a variety of major
functions within an enterprise is more likely to be able to cover up a potential crime.

CASE 10 – A.Y. 2021/2022 AUDITING AND MANAGEMENT CONTROL – GIUSEPPE D’ONZA, ROMINA RAKIPI