Case 2. (Learning Objectives 1, 2: Learning about fraud; correcting an internal control weakness) This case is based on an actual situation experienced by one of the authors. Gilead Construction, headquartered in Topeka, Kansas, built a motel in Kansas City. The construction foreman, Slim Pickins, hired the workers for the project. Pickins had his workers fill out the necessary tax forms and sent the employment documents to the home office.

Work on the motel began on May 1 and ended in December. Each Thursday evening, Pickins filled out a time card that listed the hours worked by each employee during the five-day work-week ended at 5 p.m. on Thursday. Pickins faxed the time sheets to the home office, which prepared the payroll checks on Friday mornings. Pickins drove to the home office after lunch every Friday, picked up the payroll checks, and returned to the construction site. At 5 p.m. on Fridays, Pickins distributed the paychecks to the workers.

a. Describe in detail the internal control weakness in this situation. Specify what negative result could occur because of the internal control weakness.

b. Describe what you would do to correct the internal control weakness.