question archive Julie Brown, the owner of Julie’s Party Sandwiches, has delegated management of the business to Stacie Wood, a friend
Julie Brown, the owner of Julie’s Party Sandwiches, has delegated management of the business to Stacie Wood, a friend
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Julie Brown, the owner of Julie’s Party Sandwiches, has delegated management of the business to Stacie Wood, a friend. Brown drops by to meet customers and check up on cash receipts, but Wood buys the merchandise and handles cash payments. Business has been very good lately, and cash receipts have kept pace with the apparent level of sales. However, for a year or so, the amount of cash on hand has been too low. When asked about this, Wood explains that suppliers are charging more for goods than in the past. During the past year, Wood has taken two expensive vacations, and Brown wonders how Wood can afford these trips on her $52,000 annual salary and commissions.
List at least three ways Wood could be defrauding Brown of cash. In each instance, also identify how Brown can determine whether Wood’s actions are ethical. Limit your answers to the store’s cash payments. The business pays all suppliers by check (no EFTs).
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Woodcould be: |
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Brown could investigate by: |
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Writing business checks to herself. |
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Performing the bank reconciliation and examining all checks written by the business. |
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Submitting purchase invoices a second time for duplicate payment, perhaps altering the mailing address on the duplicate invoice and sending the check to a post office box that Wood controls. |
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Examining purchase invoices for authenticity and comparing invoices to receiving reports to determine that the business received all goods it paid for.
Any invoice with a hole indicates it was paid earlier.
Calling the suppliers directly to inquire about any questionable invoices. |
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Paying suppliers excess amounts and arranging for suppliers to kick back part of the excess to Wood. |
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Comparing the business’s ratio of cost of goods sold to retail selling price to the cost-to-retail ratio in the past. A kickback scheme would show up in higher cost figures and a lower profit percentage. |
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Making small cash payments to herself. |
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Examining all cash records and comparing the records to actual quantities of supplies and other items needed by the business. |
