A. AdamSmith worked in the stockyard of a large building supply  One day heunexpectedly and without notice left for California never to return. His foreman seized the opportunity to continue to submit time cards for Adam to the payroll department. Each week, as part of his normal duties, the foreman received the employee paychecks from payroll and distributed them to the workers on his shift. Since Adam Smith was not present to collect his paycheck, the foreman forged Adam’s name and cashed it. Required: Describe two control techniques to prevent or detect this fraud scheme.

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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A. AdamSmith worked in the stockyard of a large building supply  One day heunexpectedly and without notice left for California never to return. His foreman seized the opportunity to continue to submit time cards for Adam to the payroll department. Each week, as part of his normal duties, the foreman received the employee paychecks from payroll and distributed them to the workers on his shift. Since Adam Smith was not present to collect his paycheck, the foreman forged Adam’s name and cashed it.

Required:

Describe two control techniques to prevent or detect this fraud scheme.

 

B. Gaboner Co. maintains a large fleet of automobiles, trucks, and vans for use by their service and sales force. Supervisors in the various departments maintain the fixed asset records for these vehicles, including routine maintenance, repairs, and mileage information. This information is periodically submitted to the fixed asset department, which uses it to calculate depreciation on the vehicle

To assure a reliable fleet, the company disposes of vehicles when they accumulate 80,000 miles of service. Depending on usage, some vehicles reach this point sooner than others. When a vehicle reaches the 80,000 miles, the supervisor is authorized to use it in trade for a new replacement vehicle or to sell it privately. Employees of the company are given the first option to bid on the retired vehicles. Upon disposal of the vehicle, the supervisor submits a disposal report to the fixed asset department, which writes off the asset.

Required:

Discuss the potential for abuse and fraud in this system. Describe the controls that should be implemented to reduce the risks.

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