P4-43A. (Learning Objective 3: Evaluate internal controls) Mark Kershey, a formerSmucker employee, was charged with defrauding the J.M. Smucker Company of more than$4.1 million over a 16-year period. Charges were filed in October 2014. In 2015, Kersheywas sentenced to nearly five years in prison. Kershey was the chief airplane mechanic at thecompany’s hangar at the Akron-Canton Airport in Ohio from 1990 until he was discharged bySmucker in 2013. From 1997 until the time he left Smucker, Kershey invoiced Smucker formore than $4.1 million by using a fictitious entity he created. He billed Smucker for nonexistent parts and/or work that he himself actually performed as part of his duties as a salariedemployee. Most of these invoices were for less than $10,000, which Kershey himself wasauthorized to approve. A supervisor to Kershey approved the few invoices that were for morethan $10,000 based on his trust in Kershey. To carry out his false billing scheme, Kershey set upa post office box in Lake Township, Ohio, using the fictitious entity name of Aircraft Parts Services Co. (APS). He (as APS) would then invoice Smucker using nonsequential invoice numbers, so it looked like APS was invoicing other companies too. Kershey used the proceeds topurchase and maintain two planes and several automobiles, and to make payments on his house.Kershey was eventually caught in late 2012 when three checks written by Smucker to APStotaling $44,000 were not cashed. When a Smucker employee questioned Kershey about theuncashed checks, Kershey indicated that APS had been sold to another Smucker vendor. Thefalse billing scheme began to unravel and Kershey was fired.Requirements1. What internal controls could have been used to prevent Kershey from carrying out the falsebilling scheme?2. What factors might have contributed to the weak internal control environment that allowedthis scheme to exist for 16 years?
P4-43A. (Learning Objective 3: Evaluate internal controls) Mark Kershey, a former
Smucker employee, was charged with defrauding the J.M. Smucker Company of more than
$4.1 million over a 16-year period. Charges were filed in October 2014. In 2015, Kershey
was sentenced to nearly five years in prison. Kershey was the chief airplane mechanic at the
company’s hangar at the Akron-Canton Airport in Ohio from 1990 until he was discharged by
Smucker in 2013. From 1997 until the time he left Smucker, Kershey invoiced Smucker for
more than $4.1 million by using a fictitious entity he created. He billed Smucker for nonexistent parts and/or work that he himself actually performed as part of his duties as a salaried
employee. Most of these invoices were for less than $10,000, which Kershey himself was
authorized to approve. A supervisor to Kershey approved the few invoices that were for more
than $10,000 based on his trust in Kershey. To carry out his false billing scheme, Kershey set up
a post office box in Lake Township, Ohio, using the fictitious entity name of Aircraft Parts Services Co. (APS). He (as APS) would then invoice Smucker using nonsequential invoice numbers, so it looked like APS was invoicing other companies too. Kershey used the proceeds to
purchase and maintain two planes and several automobiles, and to make payments on his house.
Kershey was eventually caught in late 2012 when three checks written by Smucker to APS
totaling $44,000 were not cashed. When a Smucker employee questioned Kershey about the
uncashed checks, Kershey indicated that APS had been sold to another Smucker vendor. The
false billing scheme began to unravel and Kershey was fired.
Requirements
1. What internal controls could have been used to prevent Kershey from carrying out the false
billing scheme?
2. What factors might have contributed to the weak internal control environment that allowed
this scheme to exist for 16 years?
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