Question

Dylan worked for a propane gas distributor as an accounting clerk in a small Midwestern town. Last winter, his brother Mike lost his job at the machine plant. By January, temperatures were sub-zero, and Mike had run out of money. Dylan saw that Mike’s account was overdue, and he knew Mike needed another delivery to heat his home. He decided to credit Mike’s account and debit the balance to the parts inventory because he knew the parts manager, the owner’s son, was incompetent and would never notice the extra entry. Months went by, and Dylan repeated the process until an auditor ran across the charges by chance. When the owner fired Dylan, he said, “If you had only come to me and told me about Mike’s situation, we could have worked something out.”

Requirements

What can a business like this do to prevent employee fraud of this kind?

What effect would Dylan’s actions have on the balance sheet? The income statement?

How much discretion does a business have with regard to accommodating hardship situations?

Answer 1

What can a business like this do to prevent employee fraud of this kind?

Business can give appropriate training to employees regarding the unethical practices and its reprecussions. They should also employee competent employees and put measures of segregation of duties as well dual authorization to curb such practices.

What effect would Dylan’s actions have on the balance sheet? The income statement?

Balance sheet will show higher accounts payable, lower cash because of fraudulent payment later on to the accounts payable and higher inventory levels and reduced profits in the income statement due to the higher cost of goods sold.

How much discretion does a business have with regard to accommodating hardship situations?

It depends upon a business and the owners attitude towards the situation. There is no specific limit or number the business set aside amount to handle such matters. Some businesses has published policies to handle such situations which not only give level of comfort to the employees but also improve business'es social reputation.

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