Fraud

Case #1 Midwest Orient Import Export Corporation To be completed by undergraduate and graduate students (ACT465 and ACT565) Due: 2/9/15 at 6:00PM Transmittal method: post on blackboard by 6:00PM on 2/9/15

You are Ti Lee Cameron, CFE, internal auditor with the Midwest Orient Import Export Corporation. You have recently completed a fraud examination in which you documented that the accounts payable clerk embezzled $18,000 from the company. The accounts payable clerk was able to perpetrate the fraud by writing checks to herself and charging them to miscellaneous expense. The fraud occurred over a period of three years. The clerk was able to commit this fraud because she was responsible for writing all checks for accounts payables and she was responsible for reconciling the bank accounts. During your examination, you discovered the following issues: 1. Due to recent downsizing, the originally established internal controls were no longer followed. 2. Morale in the office had substantially declined since the downsizing. 3. There have been no pay increases for the last two years. 4. The office manager is the former accounts payable clerk. 5. Although no negligence was established on the part of the office manager, it was documented that management was aware of the lack of internal control implementation. 6. Employees have taken more than twice the normal sick-leave time. 7. Customer complaints have increased dramatically over the last six months. 8. Returns and allowances, as a percentage of sales, are increasing at an exponential rate. 9. It was rumored that the accounts payable clerk has a serious drug addiction. Other employees suspected that she was stealing from the company.

Management has approached you for recommendations for a preventative program to avoid a recurrence of this situation with the accounts payable clerk. QUESTION Explain what recommendations you would make with respect to a fraud prevention program for each of the nine specific issues above....