BMGT 220 Chapter 6

BMGT 220 Chapter 6 - CHAPTER 6 Reporting and Reporting and...

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Reporting and Analyzing Cash and Internal Controls Reporting and Analyzing Cash and Internal Controls C H A P T E R 6
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A True Story of Accounts Payable Fraud . .. (Adapted from the Charlotte Observer, Feb 10, 2009) The plot : Mr. Johnson was the purchasing manager at The Charlotte Observer , and had the authority to receive goods and services and approve invoices for the same. The invoices were paid by the Accounts Payable Department, where Mr. Johnson’s wife happened to work. Mr. Johnson cultivated a friendship with a favorite supplier until they became close enough that he could propose his ploy: for every two shipments, invoice the Charlotte Observer for three, and we will split the payment for the phantom shipment. The outcome : The Johnsons fleeced the company of at least $ 2 million over a seven year period. During the seven years, the Johnsons’ lifestyle took a dramatic turn for the better. They sold their old home, moved into a new lakefront mansion in an exclusive neighborhood, added a swanky boat, traveled all over the world, and stockpiled fancy automobiles. All Johnson had to do to deflect curiosity was claim that an aunt had died and left him an inheritance.
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LESSONS LEARNED? Johnson should not have been permitted to approve his own action Married couple should not have entangled duties. “This is a red flag” Management should be aware of any observed lifestyle changes, which could be a hint of fraud Best protection against fraud is a well thought out system of internal controls, including checks and balances that can either prevent or detect fraud in the very early stages A True Story of Accounts Payable Fraud . .. (Adapted from the Charlotte Observer, Feb 10, 2009)
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How prevalent is employee theft? “Recent studies indicate that employee embezzlement has become so rampant that it accounts for the majority of ordinary business losses suffered by employers. Some estimates indicate that more than $400 billion is stolen annually by employees in the United States. Our experience has shown that incidents of employee embezzlement are common regardless of a particular company's size or sophistication.” © 2003 Wildman Harrold ( From the website of Wildman Harrold, a firm of legal professionals)
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Purpose of Internal Control Policies and procedures Policies and procedures managers use to . . . managers use to . . . Protect assets. Protect assets. Ensure reliable Ensure reliable accounting. accounting. Promote efficient Promote efficient operations. operations. Urge adherence to Urge adherence to company policies. company policies. Policies and procedures Policies and procedures managers use to . . . managers use to . . . Protect assets. Protect assets. Ensure reliable Ensure reliable accounting. accounting. Promote efficient Promote efficient operations.
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This note was uploaded on 04/09/2012 for the course BMGT 220 taught by Professor Bulmash during the Fall '08 term at Maryland.

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BMGT 220 Chapter 6 - CHAPTER 6 Reporting and Reporting and...

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