CASE

ANALYSIS
(WHODUNIT)

Cruz, Arianne Khaye V.

De Leon, Regilyn T.
Pena, Maricar S.
BAT 411 BEG (7:30am 9:30am)

A. SUMMARY OF THE CASE

Whodunit is a case about a crab meat processing business located in a small
town on the eastern shore of Maryland. It is a family-run business that earns from
supplying crabmeat to various restaurants. Everything seemed to be going quite well
until the business lost $40,000 in less than two months. They are trying to find out who
was responsible for stealing $40,000 from the company and how that person committed
such action.
The crab meat processing business is headed by John Smith, the president and
a stockholder of the entity. His wife Susan, who is also a stockholder, acts as the vice
president. At the end of each day, Susan constructs daily sales reports which she
summarizes to obtain monthly sales reports. Since the system that the entity is using to
record Accounts Receivable, Accounts Payable and Payroll are not integrated; she
performs the role of obtaining the running summaries of the programs and inputting
them into the General Ledger program. At month end, she analyzes the companys trial
balance and open balances in accounts receivable and accounts payable. Tommy, the
son of John and Susan, is the companys shipping manager. The company also hires
Debbie as an office worker. She shares with Susan a lot of responsibilities such as
preparing bank deposit tickets and making bank deposits, preparing checks,
constructing daily and monthly sales reports and inputting the running summaries of
programs into the General Ledger program.
The accounting records of the business are maintained on a
microcomputer.
Installed in this system are four modules namely: General
Ledger, Purchases, Accounts Receivable
and Payroll. The microcomputer having
small capacity doesnt
automatically transfer
data from the other programs.
This means that a person needs the
summaries of the Accounts Receivable,
Accounts Payable and Payroll programs into the
General Ledger Program. The
entity uses manual invoices which are not pre-numbered.
The company does not
use checks but instead pays the workers in cash every week.
There are workers with overlapping duties and some of which is not properly
segregated. The entity has lapses in the implementation of standard operating
procedures that its workers should follow, including the placing of right stamps on
specific documents like checks and recording payments they received.

B. STATEMENT OF THE PROBLEM

1. Who is the embezzler in the company?
2. How did the embezzlement occur? How to prevent it in the future?
C. CASE ANALYSIS (Answers letter a,b,c & e)

Based on the facts at hand and the segregation of duties among the employees
in the company, the perpetrator or embezzler in the company could be Susan or
Debbie. Both of them are capable of doing such a thing because they are in charged of
billing customers, making bank deposits, recording receipts of cash and checks and
updating the receivable accounts in their program, which shows an improper
segregation of duties, and it was along these lines of responsibility where the fraud
occurred.
The first signs that caught the attention of Susan were the different balances in
the accounts receivable ledger and subsidiary ledger. There were also some unusual
incidents with regards to the payments and deposits received by the company. Different
stamps were used on some of the check payments that made the others believed that it
was in cash and not deposited. The sales invoices although manual were not
prenumbered. Payments were also not recorded properly in the computer and the
missing transactions may have just been added when it was noticed that the records
were incomplete. The lack of internal control with poor segregation of duties makes it
entirely possible to change the recording function and steal the customer collections.
The embezzlement took place by one of the checks for not being cashed and
using the dates given in the computer screen before it crashed, it appears that the
second sale of the month was never recorded. The recorded $5000 transaction applied
on May 10 happened after the May 23 transaction which is incorrect, it was not
recorded chronologically. Due to the fact that it was applied for the date of May 10, it
seems that the second sale is questionable. This means that the first transaction must
have been the check which was cashed. The second payment for the second
transaction could then be used in place of the first to cover the tracks, and simply not
record the second transaction at all until the end of the period in which the balance
should be zero. The monthly bills were not sent to customers unless the customer is
behind payment.
The microcomputer aided in this embezzlement by crashing the program and
easily changing the recorded transactions in the software. In reviewing the
computerized accounts receivable subsidiary ledger the summary totals from this report
were not the totals that were entered into the general ledger program at month end,
different amounts had been entered. Some sheets in the computer listing had been
ripped apart at the bottom. And when an adding machine tape of the individual account
balances was run, the individual balances did not add up to the total at the bottom of the
report. Not all the time a company must entrust its files or records in a microcomputer
because sometimes it may also bring risk to the company.
The embezzler has the power to manipulate the transactions because she has
familiarized herself with the usual transactions of the company due to improper
segregation of duties. Based on the evidences presented and our analysis of how the
fraud occurred, it can be said that Debbie is the embezzler or the perpetrator in the

company. She has the control over the physical assets and recordkeeping
responsibilities that enabled her to steal the $40,000. If we are to analyze properly the
problem, Debbie used different stamps in the checks to make others believe that it was
not deposited but in cash and after she was questioned about it the missing payment
was then recorded on their system but it was not chronologically recorded. Right after
she was question she called Susan to the computer and showed her the customers
account and said that the payment for $5000 was in fact recorded in the customers
accounts and we must not forget that Debbie was sitting near the computer those times
so it would be easy for her to record the said transaction in order to cover her tracks.
D. RECOMMENDATION
To improve the internal controls of Crab Meat Processor, we recommend ten (10)
ways on how to lessen the fraud and to prevent it from happening in Crab Meat
Processor.
1. Segregation of Duties. If we look at the individuals duties and
responsibilities, we can conclude that one of the reasons why the fraud
occurred was improper segregation of duties. We recommend proper
segregation of duties that involves the separation of the functions of
authorization, record keeping, and asset custody so as to minimize the
opportunities for a person to be able to perpetrate and conceal error or fraud in
the normal course of her duties.
2. Pre-numbering of Invoices. Use pre-numbered invoices to easily audit the
transaction and to prevent incurring of fraud. Sequential list of invoices will
improve the internal control of the company.
3. Automated System. Transferring of records automatically from the subsidiary
ledger to the general ledger will lessen the risk of committing fraud. Having
automated system in a company will prevent the employee from manipulating
the records and it will also prevent human error.
4. Monitoring. The owner of the company must monitor the ongoing activities
built into normal operations to ensure that they continue to be performed
effectively.
5. Set Strict and Clear Policies. Setting strict and clear policies and
implementing them is another way to have effective control environment.
Policy like using one stamp, giving monthly bills to the customers, pre-number
the invoices, and etc.

6. Access Control. Individual must given only the access needed to accomplish
the task and nothing more. Refrain employee to have access to both cash and
accounting records.
7. Monthly Billing to Customers. Having complete billing records provides
the company with an official document which may be used as audit trail.

8. Hiring of Employees. Even though the Crab Meat Processor is just a small
company, the owners must prevent hiring incompetent applicants. John and
Susan must first examine and observe the skill of the person applying even the
one applying is their close friend.
9. Use Checks in Paying Wages. Payment of wages in cash is prone to
fraudulent activities. So, we recommend the use of checks in paying wages.
With that, it will prevent the concealment of cash by the person distributing it.
Physical Deterrent. Create physical deterrents such CCTV cameras,
locks, alarms to deter theft.

10.