Question
Kay Le mon, a seemingly prim-and-proper grandmother, stole $416,000 from a small Nebraska lighting store where she had been employed for 20 years as a
Lemons crime is typical of the risk to small business: The lighting stores CPA prepared only the companys tax returns, so the business was not audited. Lemon also acted as the stores accounting department. She made deposits, signed checks and reconciled the stores bank account. Although any entry-level accountant could recognize this situation as an accident waiting to happen, the stores owner did not.
After 12 years of unrelenting temptation, Lemon finally gave in. Thereafter, for years, she systematically stole money from the lighting store using the same method. She would make out a company check to herself (in her own true name), sign it and deposit the proceeds in her personal checking account.
To cover the theft, Lemon would do three simple things: First, shed enter void on the check stub when she wrote the check to herself. Next, she would add the amount of the theft to the check stub when she paid for inventory. For example, if she took $5,000 and was paying a vendor $10,000, she would show $15,000 on the vendors check stub. That way, the cash account would always stay in balance. Finally, when the checks paid to Lemon were returned in the bank statement, she would tear them up and throw them in the trash.
How was Kay able to cover up her fraud for so long? What controls should the company put in place in order to prevent future fraud?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started