Unformatted text preview: The Canny Cashier
D. Bakel was the assistant controller of Sports Equipment, Inc an equipment retailer. SEI
maintained accounts receivable for school districts in the region; otherwise, customers
received credit by using their own credit cards.
As company cashier, Bakel received all incoming mail payments on school accounts, credit
card accounts, and cash and checks taken over the counter. He prepared the bank deposit,
listing all the checks and currency, and also prepared a remittance worksheet(daily cash
report) that showed amounts received, discounts allowed on school accounts, and amounts
to credit to the accounts receivable. The remittance worksheet was used by another
accountant to post credits to the accounts receivable. Bakel delivered the deposit to the
bank and reconciled the bank statement. No one else reviewed the deposits or the bank
statements except the independent auditors.
Bakel opened a bank account in the name of Sport Equipment Company (SEC), after properly
incorporating the company in the secretary of state's office. Over the counter cash, checks,
and school district payments were taken from the SEI receipts and deposited in the SEC
account. (None of the customers noticed the difference between the rubber stamp
endorsements for the two similarly named corporations, and neither did the bank.) SEC
kept the money awhile, earning interest, and then Bakel wrote SEC checks to SEI to replace
the "borrowed" funds in the meantime taking new SEI receipts for deposit to SEC.
Bakel also stole payments made by the school districts, depositing them to SEC. Later Bakel
deposited SEC checks in SEI, giving the schools credit, but approved an additional 2 percent
discount in the process. Thus, the schools received proper credit later and SEC paid less by
the amount of the extra discounts.
SEI's bank deposits systematically showed small currency deposits. Bakel was nervous about
taking too many checks, so cash was preferred. The deposit slips had to include the SEC
checks because bank tellers compare the deposit listing to the checks submitted. The
remittance worksheet showed different details: Instead of showing SEC checks, it showed
receipts from school districts and currency, but not many over the counter checks from
The transactions became complicated enough that Bakel had to use the office computer to
keep track of the school districts that needed to receive credit. There were no vacations for 1 this hardworking cashier because the discrepancies might be noticed by a substitute and
Bakel needed to give the districts credit later.
Over a six year period, Bakel built up a $150,000 average balance in the Sport Equipment
Company (SEC) account that earned a total of $67,500 interest that should have been
earned by Sports Equipment, Inc. (SEI). By approving the "extra" discounts, Bakel skimmed 2
percent of $1million in annual sales, for a total of $120,000. Since SEI would have had net
income before taxes of about $1.6 million over these six years (about 9 percent of sales),
Bakel's embezzlement took about 12.5 percent of the income. Audit Approach
Authorization related to cash receipts, custody of cash, recording cash transactions, and
bank statement reconciliation should be separate duties designed to prevent errors and
frauds. Some supervision and detail review of one or more of these duties should be
performed as a next level control designed to detect errors and frauds, if they have
occurred. For example, someone else should prepare the remittance worksheet, or at least
the controller should approve the discounts; someone else should prepare the bank
Bakel performed incompatible duties. (While recording was not actually performed, Bakel
provided the source document-the remittance worksheet-the other accountant used to
make the cash and accounts receivable entries.) According to the company president the
"control" was the diligence of "our long time, trusted, hard working assistant controller."
Note: A vigilant auditor was "thought like a crook" might have been able to imagine ways
Bakel could have committed fraud and thus prevented or detected this cash embezzlement
and accounts receivable lapping scheme.
Since the "control" purports to be Bakel's honest and diligent performance of the accounting
and control activities that might have been performed by two or more people, the test of
controls is an audit of cash receipts transactions as they relate to accounts receivable credit.
The dual direction samples and procedures are these:
Occurrence direction: The auditors selected a sample of customer accounts receivable and
vouched payment credits to remittance worksheets and bank deposits, including
recalculation of discounts allowed in comparison to sales terms(2 percent), classification
(customer name) identification, and correspondence of receipt date to recording date. 2 Completeness direction: The auditors selected a sample of remittance worksheets (or bank
deposits) vouched details to bank deposit slips ( trace details to remittance worksheets if the
sample is bank deposits), and traced to complete accounting posting in customer accounts
Because there was a control risk of incorrect accounting, accounts receivable were
confirmed as of year end using positive confirmations. The sample included all school
When prompted by notice of an oddity (noted in the discovery summary below), the audit
team can use the telephone book, chamber of commerce directory, local crisscross
directory, and a visit to the secretary of state's office to determine the location and identity
of Sport Equipment Company. Discovery Summary
The test of controls samples showed four cases of discrepancy, one of which is shown below.
The auditors sent positive confirmations on all 72 school district accounts. Three of the
responses stated the districts had paid the balances before the confirmation date. Follow up
procedures on their accounts receivable credit in the next period showed they had received
credit in remittance reports and the bank deposits had shown no checks from the school
districts but had contained a check from Sports Equipment Company.
Investigation of SEC revealed the connection of Bakel, who was confronted and then
confessed. Bank Deposit Slip
Sport Equipment 1,563
Deposit 3, 143 Cash Remittance Report
Hill District 980
Marlin District 480
Waco District 768
2, 300 Sales
915 3 ...
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- Spring '14
- Cheque, Savings account, remittance worksheet, D. Bakel, Bakel