8Ed.sol2.4 - CASE 2.4 CAPITALBANC CORPORATION Synopsis This...

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CASE 2.4 CAPITALBANC CORPORATION Synopsis This case examines an embezzlement scheme involving CapitalBanc Corporation, a publicly- owned bank holding company based in New York City. The principal operating unit of CapitalBanc was Capital National Bank, a bank that had five branch offices scattered across the New York City metropolitan area. CapitalBanc’s CEO, Carlos Cordova, embezzled at least $400,000 from the firm’s 177 th Street Branch office. Cordova’s embezzlement was discovered after the bank was declared insolvent in 1990 and taken over by the Federal Deposit Insurance Corporation (FDIC). Cordova subsequently pleaded guilty to several counts of bank fraud. In 1987, CapitalBanc retained Arthur Andersen to audit the financial statements to be included in its 10-K. Ironically, Arthur Andersen selected the 177 th Street Branch to perform a surprise year-end cash count. When the auditors arrived, they discovered that $2.7 million, more than one-half of the branch’s cash funds, were not accessible. Allegedly, those funds were segregated in a locked cabinet within the branch’s main vault. According to branch personnel, three keys were required to unlock the cabinet, one of which was in Cordova’s possession. Since Cordova was out of the country at the time, the employees were unable to unlock the cabinet. After consulting with their superiors on the audit engagement team, the Arthur Andersen auditors informed the branch’s personnel that they would count the cash funds in the locked cabinet when Cordova returned. Upon returning to New York City, Cordova had cash funds from other CapitalBanc branches transferred to the 177 th Street Branch to conceal his embezzlement. When the Arthur Andersen auditors returned to that branch to count the funds in the locked cabinet, they did not count the cash funds of the other branches and thus failed to discover the shortage. Nor did the Arthur Andersen auditors adequately corroborate Cordova’s explanation regarding why such a large portion of the 177 th Street Branch’s cash funds were segregated in the locked cabinet and thus
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This note was uploaded on 09/15/2011 for the course ACT 442 taught by Professor Nancy during the Spring '11 term at Ohio State.

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8Ed.sol2.4 - CASE 2.4 CAPITALBANC CORPORATION Synopsis This...

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