SCENARIO:

Mondo's Auto Body Shop, Corp. employed several mechanics and body experts, including Mike who had worked as a mechanic for Mondo's since the business opened. It also employed one front desk clerk, Stephanie, who answered calls, set schedules, took payments and made deposits, and was generally responsible for all the business's accounting.

Janet, a new customer, came into the shop requesting service on her truck, including an oil change and regular maintenance check. Stephanie took her information, the keys for her truck, and notified Mike, that the truck needed an oil change. Janet stated that she had some errands to run and that her wife, who was in the parking lot with her car, would bring her back in a couple hours.

After taking care of Janet's paperwork, Stephanie went back to her desk to place an order for some parts for other customers' vehicles. She frequently used a parts company called Parts Unlimited, run by Ivan. Stephanie preferred using Parts Unlimited because they were always significantly less expensive than other part storesalthough she had recently heard rumors that Ivan was involved in the black market and his parts were so cheap because they came from stolen cars. She also heard that he was using the company to launder money, but Ivan had always delivered parts on time to Mondo's and that had helped to keep Mondo's customers happy.

Stephanie's process for ordering parts from Parts Unlimited worked as follows: she would enter the standard market price for a part onto the customer's invoice and into the Mondo's accounting system. Then when Ivan would bill Mondo's for the cost of the parts, he would send an invoice for the full retail amount charged to the customer and also send a pro forma invoice for his "discounted" cost. Stephanie would enter into Mondo's accounting system that she had paid the higher amount, but actually would pay the lower amount to Ivan and deposit the difference into her own checking account. Ivan would claim on his records that they full invoice was paid but would subsidize the lower amount paid by Stephanie with cash from his illegally obtained funds to reflect the full amount on the invoice.

Since Stephanie regularly signed the name of Charles Mondo, the sole shareholder and owner of Mondo's Auto Body Shop, Corp., on checks for the business (with Charles' permission) she was able to write checks to herself in addition to Ivan without drawing any attention to her process.

As Stephanie worked, Janet was out running her errands and was shocked to see a truck drive by that looked like her own. As she got close enough to check the license plate, she realized it was, indeed, her vehicle. Janet and her wife proceeded to follow the truck into a parking lot of a Walmart, where Mike (who was driving) exited the vehicle and went inside. Janet's wife happened to have her spare set of keys for Janet's truck in her purse, so Janet took the keys, unlocked her truck, and drove it out of the parking lot. Just as she was exiting the parking lot, Mike came out of the store and realized that someone was driving off in the truck though he didn't know it was Janet. He flagged down a police officer sitting in the parking lot, who took off in pursuit of the truck. As the officer pulled over the truck, Janet realized that in her haste she had left her purse in her wife's car and had no identification on her. As the officer demanded she exit the vehicle she explained that the vehicle belonged to her. The officer asked her for identification, but since she was unable to provide any, he placed her in handcuffs and then put her in the back of his cruiser. Other officers arrived on the scene and notified Mike that the vehicle had been recovered. As he had been waiting, Mike phoned Mondo's Auto Body and told Charles that someone had stolen the truck he "borrowed" to run a personal errand. Unknowing that the thief was actually the truck's true owner, Charles told Mike that they would just tell the customer that the thief stole the vehicle while Mike was out driving the vehicle to test the suspension as part of the maintenance.

DISCUSSION QUESTIONS:

Answer each of the following questions:

1. As business owner, it is often more efficient to allow certain employees to act as signers on business bank accounts. What are the risks of having another person act as a formally authorized signer? What if the signer is not officially authorized through the bank, but the owner permits them to regularly sign on the owner's behalf?

2. What internal controls should Charles implement to ensure his business is protected from criminal liability? What about himself, personally?

3. Could Ivan's below market value pricing coupled with the rumors in the community about his business practices be sufficient to alert Mondo's about potential criminal activity? Could knowledge of Ivan's criminality be imputed to Mondo's so that Mondo's may be held criminally liable for receiving stolen property, if Ivan is in fact guilty?

4. As the owner of the business, should Charles be held liable for any of Stephanie's illegal conduct in buying potentially stolen parts from Parts Unlimited?