Question

The ABC Company has two divisions, the sales and manufacturing divisions. The president (Randy Savage) manages the sales division. Savage delegated responsibility for management of the manufacturing division to Jane Thomas. The company has a competent accounting staff and an internal audit department. Unlike Savage’s procedures, however, Thomas and her assistant: Supervise construction, Maintain the physical inventory, Receive manufacturing job bids, Approve all bid updates, Purchase materials, Contract shipping needs, Bill the customer, and Collect payments. With Savage’s approval, Thomas has asked the internal auditor not to interfere with her busy schedule. In the current way of doing things, what are potential frauds that may happen? Suggest several improvements to reduce the risk of fraud and improve internal controls? How would you implement these improvements?

Answer 1

In the given it is clearly evident from the actions of Thomas that, his department works are completely overseen by herself and her assistant, enhancing the doubt towards the involvement of any fraud, Thomas also directed internal auditor not to interfere in her schedule.

This m ight pave a way to a lot of fraudulent activities because there is no division of work complete processes are handled by only 2 persons, so inorder to their personal benefits they may be attracted for frauds.

I would recommend involvement of accounting staff in the schedule and also internal audit team should also focus on the activities overseen by Thomas.