Brown, the owner of Julie’s Party Sandwiches, has delegated management of the bu

Question

Brown, the owner of Julie’s Party Sandwiches, has delegated management of the business to Stacise 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 sales. However, for a year or so, the amount of cash on hand has been to low. When asked about this, Wood explains that suppliers are changing 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 compensations. 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).

Explanation / Answer

Wood can defraud Brown of cash in the following three ways;

1. By arranging invoice with inflated price. So invoces are booked with inflated price, ayment made in checks and the suppliers reimburse Wood separately for the extra price received. This action is highly unethical as willful misstatement of purchase price and getting monetary benenfit from supplier is a fraud as per accounting norma as well as morally. Brown can cross check the price of the goods in market and easily establish the truth.

2. Wood may collude with supplier to invoice for more qty than actually supplied .Wood can arrange for showing higher material receipt , show extra material consumption in books. The supplier will be paid extra for the extra material shown but not supplied and then reimburse Wood for the extra payment. This action of Wood also amounts to accounting and moral fraud and Brown can easily cross check the inventory, actual consumption of materials and find ot the truth.

3. Wood can arrange for Invoices without any material supply and in the same way as above can arrange for additional material receipt , usage and getting paid back for the fraud.

This action of Wood also amounts to accounting and moral fraud and Brown can easily cross check the inventory, actual consumption of materials and find ot the truth.

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