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Fraud and Internal Control at Bern Fly Company

Paper type: Essay
Pages: 3 (550 words)
Categories: Company
Downloads: 22
Views: 341

This scheme gives the opportunity for the salespersons to get very easy money by simply making fake orders and then cancelling them once they got the commission for that order. They can even act in collusion with the cash disbursement clerk at the disbursement department and this way, without the control of a person of a higher level on the echelon within the company, this fraud can never be detected. The solution in this situation is simply the segregation of duties, that is orders should not go directly to the cash disbursements department but should go through an internal control process first.

The cash disbursements department must be only the final stage of the chain when everything was found to be correct and the cash disbursement is permitted by the control department. What’s more, the afterlife of the order should not be left out of consideration either, as it marks out from the description of the task that the product returns are extremely high which in fact offset the high sales figures of the salespersons and decrease the company’s profit.

In this case we should check if this high rate of returned products is caused by the not adequate quality of the products, in which case the salespersons deserve the commission of the sales activity, or it is caused by the fraudulent acts of the salespersons, in which case they don’t deserve it and actions have to be taken to stop this practice. We can also see some imperfections in the method of the expense reimbursements. The way, that the salespersons hand in their expenses on a hard copy and they are accepted and paid promptly without any control over them, gives the chance for the salespersons to commit fraud again.

The simplest way of it is to hand in a hard-copy spreadsheet which includes higher charges than the person’s real expenses that occurred during the sales process. This matter can be fairly easily handled by asking the persons to prove their expenses with receipts and bills instead of simply presenting them on a spreadsheet filled in by themselves. Also that system is quite questionable that the clerk accepting the spreadsheet of expenses is the same person who decides about the disbursement and also the same person who implements the disbursement.

The above mentioned segregation of duties should be applied in this area, too, the roles should be separated between more independent persons of different levels of the echelon. If these changes are not brought into effect, the firm will keep lying under the danger of being defrauded by its employees. Even the most honest employees can give in to temptation if the bad system used by the firm allows them to commit a fraud and get easy money without the risk of getting caught.

The technical literature calls this the ‘fraud triangle’, which is a theory about the reasons that can lead to fraudulent behaviour. This theory consists of three components which together can lead to occupational fraud. They are pressure (e. g. having some financial problem), opportunity (e. g. being in a position within the company where it is of minimal risk to be caught) and rationalization (which means that the person committing the crime gives himself a rational explanation why it is acceptable what he is doing).

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Fraud and Internal Control at Bern Fly Company. (2018, Sep 04). Retrieved from https://studymoose.com/fraud-and-internal-control-at-bern-fly-company-essay

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