The Perfect Crime? Consider the following story of an actual embezzlement This w

Question

The Perfect Crime? Consider the following story of an actual embezzlement This was the ingenious embezzler's scheme: (a) He hired a print shop to prin nt a private stock of Ajax Company checks in the company's numerical sequence. (b) job as an accounts payable clerk at Ajax, he intercepted legitimate checks written by the accounts payable department and signed by the Alax treasurer and destroyed them. (c) He substituted the same numbered check from the private stock, payable to himself in the same amount as the legitirmate check, and he "signed" it with a rubber stamp that looked enough like the Ajax Company treasurers signature to fool the paying bank. (d) He deposited the money in his own bank account. The bank statement reconciler (a different person) was able to agree the check numbers and amounts listed in the cleared inerms in the bank statement to the recorded cash disbursement (check number and amount) and thus did not notice the embezzler's scheme. The embezzner was able to process the vendor's "past due" notice and the next month's statement with complete documentation, enabling the Ajax treasurer to sign another check the next month paying both the past due balance and current charges. The embezzler was careful to scatter the double-expense payments among numerous accounts (telephone, office supplies, inventory, etc.) so the double-paid expenses did not distort any accounts very much. As time passed, the embezzler was able to recommend budget amounts that allowed a large enough budget so his double-paid expenses in various categories did not often pop up as large vanances from the budget. Required List and explain the ways and means you believe someone might detect the embezzlement. Think first about the ordinary eyeryday control activities. Then think about extensive detection efforts assuming a tip or indication of a possible fraud has been recelved. Is this a perfect crime"?

Explanation / Answer

Part a

Ordinary everyday control activities

1. Verification by the cashier

Once the cashier receives the check from the accounts payable department, he should examine the check for details like name of the party, account number, amount, date, signature etc before presenting the check for payment to the bank. This can help him recognize the fraud before the check reaches the bank for payment and gets credited into the account of the embezzler.

2. Reconciliation at the level of bank statement reconciler

The fraud can be detected at this level if reconciliation of the bank statement is done properly. Currently only the check number and their corresponding amounts are being reconciled. This reconciliation should go deeper wherein the vendor’s name as well as his bank account number of the vendor should also be matched. Thus, it will highlight all such cases where the embezzler’s name and account number has replaced that of the vendor.

3. Reconciliation at the level of the treasurer

Since the treasurer is responsible for receipt, care as well as disbursement of finances, he should check the previous records or payment history for a particular vendor while signing his check for past due balance and current charges. He should be particularly vigilant for all those cases where past due notices have been sent be the vendor. Since a 100% check is not feasible if the volume of transactions is high, a random check on a periodic basis can help to detect such embezzlement.

4. Physical verification of records and stocks

Since the embezzler scatter the double –expense payments among accounts like accounts like telephone, inventory, office supplies etc, verification of actual bills, receipt and issue of inventory, office supplies should be done on a regular basis. This will highlight the differences between the actual stocks lying in the company against the amount of expenditure as being claimed by the accounts payable clerk.

5. Budgetary control

Since the embezzler is able to get the approval for large budget amounts in order to hide the double –expense payments from various accounts like telephone, inventory, office supplies etc, budgetary control needs to be exercised. This will enable the management to monitor the budgets, and control costs during the accounting period. Continuous evaluation of the budgets and comparing the actual amounts with the budgeted amounts will highlight the discrepancies and enable the management to plug in the loopholes that the embezzler is taking advantage of.

Part b

Detection efforts assuming a tip or indication has been received

1. Continuous monitoring of the employee

The employee can be kept under a constant watch without being informed. This will help to detect improper activities and anomalies being undertaken by the embezzler. Instances where the management is suspicious can be delved further.

2. Cross- questioning the employee

Against The tip- off received; the employee in question should be interrogated directly. A thorough questioning and warning him of the business policies against such frauds can lead to a confession by the embezzler. The records maintained by him can also be examined.

3. Separation of duties

The company can adopt the maker- checker- approver principle wherein the responsibility of handling the accounts payable check will be divided between two or more people. Thus, a fraud is not possible until all of them collude to hide such an embezzlement of funds.

4. Making a provision for digital payment for accounts payable

Reducing the dependency on physical checks and instead making a provision for digital payment for accounts payable will make any detection of embezzlement of funds easier. Instead of relying on the employee in question, the responsibility of payments will be automated.

Part c

If a crime is devised and executed in such a manner that it cannot be detected at all, it is known as a perfect crime. No, it is not a perfect crime as we can see that the fraud can be detected in many ways (mentioned ablove) by the company only by deploying a few more controls.

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