Accounting And Financial Decision Making

4 Pages 1065 Words

Most executives and business owners ascertain company health based purely on the financial end result. However, impropriety does not always reveal itself on the balance sheets. In an article by Joseph T. Wells in the Journal of Accountancy the problem of cash register theft is addressed and illustrates the effect on a company’s financial health.
In the article, an internal auditor was ask to investigate why on particular store had lost money for three consecutive years. The author, a fraud examiner, worked with the auditor to determine where the money was going and the method used to obtain it. The first clue was when refund slips were discovered that were for exact even amounts, which is not typical of refunds. It was found that the company’s accounting method of verifying net sales against bank deposits aid the culprit in the embezzlement of thousands of dollars in cash over the previous three years. If the company had at any time performed a horizontal analysis of income statements a red flag would have appeared because of increased refunds in comparison to sales.
A former manager, no longer with the company, was soon discovered to be the culprit. The former employee’s personal finances were going to have to be examined in order to solidify the case and provide concrete evidence against the employee. There are three ways that these personal records could be acquired, through an attorney, through the police or both. The company’s CEO elected to have the police subpoena the former manager for all his personal banking information over the last three years. By examination the auditor was able to match the amounts from refund receipts to exact unexplained cash deposits in the former manager's bank account. One of the most surprising discoveries was more than $600,000 of the missing $800,000 total had been openly deposited into the manager’s account. The final outcome to the case was unfortunate and all too common. The Pros...