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deposit & trust embezzlement

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4. What evidence presented indicates that the control environment at Greater Providence may have been deficient and contributed to the embezzlement.

This is for Accounting Information Systems class.

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1. Discuss how Greater Providence Deposit & Trust might improve its control procedures over the disbursement of loan funds to minimize the risk of this type of fraud. In what way does this case indicate a lack of proper segregation of duties?
There are several methods by which Providence Deposit & Trust might improve its control procedures over the disbursement of loan funds to minimize the risk of this type of fraud. No single employee should be authorized to make consumer loans. The segregation of authority should be such that two employees of the same level and not having any reporting relationship should give authorization of loans. The next control measure should be that the checks should be issued by a third person not having any reporting relationship with the two approvers of the loan. Further, no teller should pay loan money to any employee of the bank. The checks must be account payable only and should not be cashed at the branch which is disbursing the loan. No loan above a certain limit, (suggested limit $10,000) should be passed without the approval of the loan committee. No loan should be passed by Providence Deposit without a full credit report from an outside independent agency. Every loan application should be reviewed by the internal auditor or her staff. There should be a checklist that bank loan review clerk should check and should flag off the loan if any of the conditions is missing. There is no point in ...

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Cash Receipts and Payment of Personal Expenses

6.47 Employee Embezzlement via Cash Receipts and Payment of Personal Expenses. This case gives the problem, the method, the audit trail, and the amount. In this case, you can assume you have received the informant's message. Your task is to write the "audit approach" portion of the case, organized around these sections:

Objective: Express the objective in terms of the facts supposedly asserted in financial records, accounts, and statements.

Control: Write a brief explanation of desirable controls, missing controls, and especially the kinds of "deviations" that might arise from the situation described in the case.

Test of controls: Write some procedures for getting evidence about existing controls, especially procedures that could discover deviations from controls. If there are no controls to test, then there are no procedures to perform; then go to the next section.
An audit "procedure" should instruct someone about the source(s) of evidence to tap and the work to do.

Audit of balance: Write some procedures for getting evidence about the existence, completeness, valuation, ownership, or disclosure assertions identified in your objective section above.

Discovery summary: Write a short statement about the discovery you expect to accomplish with your procedures.

The Extra Bank Account
Problem: Cash receipts pocketed and personal expenses paid from business account.

Method: The Ourtown Independent School District, like all others, had red tape about school board approval of cash disbursements. To get around the rules, and to make timely payment of selected bills possible, the superintendent of schools had a school bank account that was used in the manner of a petty cash fund. The board knew about it and had given blanket approval in advance for its use to make timely payment of minor school expenses. The board, however, never reviewed the activity in this account. The business manager had sole responsibility for the account, subject to the annual audit. The account received money from transfers from other school accounts and from deposit of cafeteria cash receipts. The superintendent did not like to be bothered with details, and he often signed blank checks so the business manager would not need to run in for a signature all the time. The business manager sometimes paid her personal American Express credit card bills, charged personal items to the school's VISA account, and pocketed some cafeteria cash receipts before deposit.

Audit trail: An informant called the state education audit agency and told the story that this business manager had used school funds to buy hosiery. When told of this story, the superintendent told the auditor to place no credibility in the informant, who is "out to get us." The business manager had in fact used the account to write unauthorized checks to "cash," put her own American Express bills in the school files (the school district had a VISA card, not American Express), and signed on the school card for gasoline and auto repairs during periods of vacation and summer when school was not in session. (As for the hosiery, she purchased $700 worth with school funds one year.) The superintendent was genuinely unaware of the misuse of funds.

Amount: The business manager had been employed for six years, was trusted, and embezzled an estimated $25,000.

Explain the process and benefits of audit sampling.

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