The Adviser: Fraud Detective The Adviser is a monthly activity where you take on the role of an accounting guru whose expertise will help local businesses. It is your job to make sure your clients are on the path to financial success. Over the last month as the Adviser, you have been contacted by five different local businesses who have recently discovered financial fraud which could have been avoided with internal control policies in place. Internal controls are important for companies as they implement rules and procedures, such as handling incoming cash, checks and payment authorization, that help ensure the integrity of financial and accounting information, promote accountability, and prevent fraud. Internal controls can help improve the operational efficiency of financial accounting accuracy and timeliness. When internal controls are not properly implemented and followed, an organization risks experiencing a variety of issues including - but not limited to - a failure to comply with laws and regulations, fraud, or employees stealing assets. The following five businesses reached out to you to help investigate and rectify their recent fraudulent activity: Campbell Coffee-a local coffee chain with shops across the city. The Robotics Company-a robotics technology company that sells its equipment to businesses around the world. City Bicycle Shop-a privately held company that builds custom bikes for cycling enthusiasts. RBO Construction Inc-a local construction company that deals with large build projects. W&M Windows-a manufacturing company that provides energy-efficient windows to clients across North America. Get together with a partner and review the following five scenarios below. Spend time over the next few minutes discussing what seemed to cause the fraudulent activity and develop internal control recommendations that these five businesses can follow to help prevent it from occurring again. Scenario What went wrong in the organization's structure that allowed the issue to occur? What is your recommendation(s) that the organization can follow to prevent this activity from occurring again? The president, her assistant and another staff member employed at Campbell Coffee piled up $450,000 in fraudulent transactions over the past year. The president racked up $300,000 in unauthorized credit card charges on the company's corporate American Express cards. The assistant collected $50,000 in funds via unauthorized credit card charges to herself. The staff member used the remaining $100,000 on designer clothing, concert tickets, and vacation trips. The fraudulent charges continued to occur until a newly hired accounts payable manager discovered the questionable charges. Scenario What went wrong in the organization's structure that allowed the issue to occur? What is your recommendation(s) that the organization can follow to prevent this activity from occurring again? Noah, a sales manager at The Robotics Company, frequently travels to potential clients across the United States to help sell the company's products and services. Because of his frequent trips, Noah developed personal relationships with several local individuals. He regularly dined out with them at expensive restaurants and submitted claims for expense reimbursement for "business-related meals." Noah accumulated $10,000 worth of fraudulent expenses over two years by spending outrageous amounts on food and even up- charging the amount before submitting expenses to get more money in his pocket. As time went on, Noah bragged to his colleagues about "getting away" with his expense abuses, justifying that the meals are extra compensation for his stressful travel schedule. The senior leadership team learned of the fraud a few weeks after colleagues heard about his expense abuses. The team confronted Noah and promptly terminated him. Scenario What went wrong in the organization's structure that allowed the issue to occur? What is your recommendation(s) that the organization can follow to prevent this activity from occurring again? City Bicycle Shop works with many B2B companies to buy bicycle parts. Each month, Zhang manages invoice payments for all vendors. One day, Zhang decided to try and gain some extra cash. He decided that when he would write checks to the vendor, he would also write a separate check to himself and code the charge to the vendor. For example, City Bicycle Shop owed Acme Trinkets $500. Zhang wrote the check to Acme Trinkets as $500 and wrote a separate check to himself for $100 and coded it in the accounting system as "ACME. Zhang continued this process for five years, stealing $300,000 in cash. Fraud was only discovered when Zhang fell very ill for a few weeks and a temporary accounting employee discovered it. Scenario What went wrong in the organization's structure that allowed the issue to occur? What is your recommendation(s) that the organization can follow to prevent this activity from occurring again? At RBO Construction Inc., the payroll process is handled in-house by the bookkeeper, Brandy. Because of an illness in the family, Brandy is experiencing serious financial pressures. She adds her friend Jamie Smith to the payroll at a weekly salary of $630 and sends a check to Jamie's house. Brandy pays Jamie $50 per week for allowing her to use her address. For three years, Brandy prepares, sends, and negotiates paychecks for "Jamie" until an internal auditor reviews the company's payroll records and discovers the scheme. Scenario What went wrong in the organization's structure that allowed the issue to occur? What is your recommendation(s) that the organization can follow to prevent this activity from occurring again? As a top executive at W&M Windows, Sofia has the authority to approve vendor invoices and have them processed for payment by the company's accounts payable department Sofia, along with three of her friends, developed a scheme where she would facilitate payment of bogus invoices by submitting fraudulent vendor forms in the names of three friends or illegitimate companies controlled by them. Checks issued by the company in payment of these invoices were sent to Sofia's friends. Sophia and her friends successfully stole $700,000 from this scheme. Sophia received $140,000 from this amount as kickbacks