Analyze the following case from Turner, Weickgenannt, and Copeland (2017): At th

Question

Analyze the following case from Turner, Weickgenannt, and Copeland (2017): At the old city hall, mail was sorted in a glorified closet—not the sort of place you'd expect to be frequented by a highranking city official with multiple degrees. However, the city of Weston's chief financial officer, Steve Kaufmann, had an unusual interest in the mail. He was often known to greet the postal carrier at the door to receive the day's delivery, take it to the mail closet, then immediately remove selected envelopes and parcels and take them to the privacy of his office. Other times, he would request hand delivery of incoming payments, circumventing the mail closet altogether. These activities were part of an elaborate embezzlement scheme that resulted in the loss of millions of dollars for the city. Mr. Kaufmann was intercepting checks written to the city and endorsing them to his personal bank account. The procedural manual for Weston's accounting department described mailroom policies, including the requirement for a clerk to log checks into a computer file and prepare a receipt. Another employee was responsible for preparing an independent verification of the amount of the receipts, and a third employee made the bank deposit. Despite these written guidelines, Mr. Kaufmann was often known to carry out some of these tasks himself, or to claim to be doing so. In response to the news of this fraud, the CFO of a neighboring community commented that many cities are unable to achieve strong internal controls because of the limitations of small staff size and tight operating budgets. Rather, small cities often have no choice but to rely on the integrity of their employees. (p.100) Perform an analysis on the internal control activities that were violated in order for Mr. Kaufmann to perpetrate this fraud. Is this case an example of management fraud or employee fraud? Determine if the city's procedural manual was adequate for prescribing internal controls to prevent this type of fraud. Why do you think no one reported the unusual mailroom practices of Mr. Kaufmann?

Explanation / Answer

Answer:

1. Perform an analysis on the internal control activities that were violated in order for Mr. Kaufmann to perpetrate this fraud.

Answer:The procedural manual for Weston's accounting department described mailroom policies, which consist of three level checks as below

In our case all the three level checks has been violated by Mr. Kaufmaan to perpetrate this fraud.

Is this case an example of management fraud or employee fraud?

Answer: Since Mr. Kaufmann is in the position of CFO of a City, he is considered as a member of management and this case can be taken as a example of management fraud.

Determine if the city's procedural manual was adequate for prescribing internal controls to prevent this type of fraud

Answer: The said City's procedural manual was inadequate to control of management fraud since the final authority is the CFO and generally employees wont question higher officials due to the fear of loss of job. The said procedural manual is adequate to control only the employee's fraud activities.

Why do you think no one reported the unusual mailroom practices of Mr. Kaufmann?

Answer: The probable reasons for not reporting the unusual mailroom practices of Mr. Kaufmann are

Thanks.

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