=+vWhat general internal control weaknesses contributed to this fraud?

E5-8 Financial statement fraud Objs 2, 3 A former chairman, CFO, and controller ofDonnkenny, Inc., an apparel company that makes sportswear for Pierre Cardin and Victoria Jones, pleaded guilty to financial statement fraud.

These managers used false journal entries to record fictitious sales, hid inventory in public ware¬

houses so that it could be recorded as “sold,” and required sales orders to be backdated so that the sale could be moved back to an earlier period. The combined effect ofthese actions caused

$25 million out of $40 million in quarterly sales to be phony.