Scenario: ABC Corporation is a small manufacturing company with a growing business. The company has a simple accounting system managed by just two employees: Emily, the accountant, and John, the office manager. Emily handles the company payroll and manages the company$$s authorized vendors and the accounts payable and reconciles the bank statements to the company$$s records. John is responsible for all other aspects of the company$$s finances, including processing customer orders, receiving payments, depositing them into the bank, and managing accounts receivable.

Incident: After the company$$s annual financial review, the external auditors discovered a discrepancy: several payments made by customers were not recorded in the accounting system and did not match the bank deposits. A further investigation revealed that John had been embezzling funds by not depositing some of the checks from customers into the company$$s bank account. Instead, he pocketed the money and altered the customer records to make it appear as though the payments were deposited. Since Emily was responsible for reconciling the bank statements but John had full control over the accounting records, she didn$$t notice the discrepancies.

Discussion Questions:

$1.$ What control weakness$($es$)$ do you see that allowed John to embezzle funds?

$2.$ Identify two controls that the company could implement to reduce the risks of future fraud. For each control you identify, specify whether it is a preventive or detective control