Full-of-Nature is a vitamin supplement company in New York that makes different herbal pills for gaining muscular strength, losing weight, and living a healthier life. You have been hired to audit Full-of-Nature and soon realize that the company has many problems. You notice the following frauds being committed and are writing a report to the board of directors about what should be done to fix the problems. For each fraud, list one control procedure that was not followed and suggest how the company should eliminate the fraud and deal with the perpetrator.
1. There are journal entries for consulting expenses that, when traced back, show five companies using the same post office box for receiving consulting fees from Full-of-Nature. You discover that the accountant has been embezzling money and listing it as consulting expenses.
2. The warehouse manager has been stealing pills to help his son get stronger (he wants his son to play football). To cover the losses, he issued credit memos to customers, showing that they returned bad goods that were replaced with new pills.
3. The CEO decided he did not like paying payroll taxes anymore, so he fired all of his employees and rehired them as contractors. However, he still withholds payroll taxes and keeps the money for himself.
4. The accounts payable clerk likes to go shopping with the company checkbook and always buys herself a little something when she orders office supplies. However, since she is the one who handles office supplies, no one knows what was purchased for the company and what was ordered for her living room.