Question

This illustration is known as the “Fraud Tree” and depicts various ways an employee can misappropriate assets. Notice there are three main ways employees can embezzle cash: skimming, larceny, and fraudulent disbursements. Explain how an employee would embezzle money under this scheme. What internal controls can management put into place to prevent this type of embezzlement?  

Requirements: I picked larceny

Answer 1

Larency is a type of frauf where employee who is the initiator of fraud steals assets after they are entered into the books by the employer.

Such fraudulent activities can be prevented by implementing the following internal controls:

1. Segregation of duties: The organisation structure should be designed in such a way that no single person has the control of the Asset as well as its records. Therefore he who handles the asset should not handle its records. The duties should be segregated in such a way that the work of the one person automatically comes under the supervision of the another.
2. Implementation of rotation of assignments: When the employ work on the system for a long time, it is obvious he will come across the loopholes of the system. Thus he can familiarize himself and abuse these loopholes to his advantage. Thus precipitate fraud. For preventing this employer should implement a system of job rotation within the organisation.
3. Encourage leaves or implement compulsory holiday: By this, the employer can assign a substitue employee to carry out business functions laid by absence of the employee. It can also help in determining if the employee was indulged into commencing any frauds.
4. Supervision: As explained, work should be structured in such a way that work of one person shall automatically come under supervision of the other. This can reduce larency to greater extent as responsibility towards ethical work performance will increase.
5. Surprise Checks: Whether fear of or worry about, surprise checks will impose a sense of responsibility among employees to not cause any frauds. Also helps in early discovery of the frauds too.