CASE 5 : THE Coryell County Tax Assessor-Collector (TAC)

office

Question

1. Identify the internal control weaknesses that appear to be in the Tax Assessor-Collectors office. What types of
recommendations would you make to improve the identified weaknesses.
2. What red flags could you note, based on the above information that could arouse suspicions that some type of
fraud or embezzlement could have been occurring? Why do you suppose that the employees within the county office
failed to place much emphasis on these red flags? As a state auditor, what would you recommend to try to prevent
future occurrences of this situation?
3. Prepare a graph (bar graphs x-y format, etc.) to compare the known funds claimed by the Wilsons versus the
withdrawals made against the joint bank account. What does this graph suggest to you? (Note: if possible, it is
recommended that you do the graph using appropriate computer software).
4. Dr. Charles Wilson, in his defense, argued that he was unaware of the embezzlement being perpetrated by his wife.
What information can you determine from the case to refute his argument?
5. It appears that this county office did not have an internal auditor on its staff. In fact, the state did not conduct any
audit work until the embezzlement was discovered. Do you think that an internal auditor might have been able to
uncover this fraud? If so, how do you think that the internal auditor would handle the situation

Solution
1. Internal Control Weakness

Internal Control Weakness Problem / Threat Suggestion Control

There are no oversight between
deputy and director because
closely related relationship
The person who are input the
form is also who are collect the
cash
The person who are collect the
cash is also person who conduct
the reconciliation
There is no separate person who
conduct data management
There are no two way Make a Standard Operation Procedure to
control so each person strict conduct a job on their position and no
cannot conduct their job inappropriate task conduct from each person
properly
Manipulation of Segregation of duties - The form input or
transaction record a transaction should be conduct
separate by a person who collect the cash.
The deputy (Joan Wilson) should be only can
collect the cash and deposit to the bank and
the input of transaction done by other
employee
Theft of cash Segregation of duties - The person who
collect and deposit the cash to the bank
should be separate with the person who
conducts the reconciliation. The deputy (Joan
Wilson) should be only can collect the cash
and deposit to the bank and the
reconciliation conduct by the director (Joan
Blanchard)
Employee can change Make a copy of form (since it is 1993 and
again the form that there are no scan of document) to the data
should be an archive file management or other employee and the
and cannot be changed original kept by the deputy
 The deputy can change
employee timesheet
Abusive action from the The deputy should not change the employee
deputy timesheet. Make an automatic clock time
sheet so employee can tap the card from
time in and time out in office and the deputy
can only supervise the process of that

There is no whistleblowing No early fraud detection Make an anonymous whistleblowing system

system that inform directly to the because other employee so employee can share their concern to their
director to report indication of already aware there are boss (in this case, to the director) or to the
fraud suspicious action and internal auditor
condition from their boss

2. Red Flags

According to the Association of Certified Fraud Examiners (ACFE), internal fraud divided into three categories:
(1) asset misappropriation; (2) fraudulent statement; and (3) corruption. The information told us that Joan Wilson
(Chief Deputy) did all the frauds that classified by ACFE. For the asset misappropriation, she took the company
checks (cash), used a postage meter for personal mail, and used business phone to make personal long distance
calls. Then, she also made a fraudulent statement. She manipulated the cash sheet to cover her frauds. She could
do this because she was the only one who handled all the reconciliation and all the cash-activities on the company.
And of course the corruption, she did all the embezzlement to fulfill her own interests.

By the information above, some type of fraud or embezzlement could have been occurring by emphasis on
arouse suspicions things such as:
 In carrying out her function, Chief Deputy got a minimum oversight from the Director
Director rarely to reconciled any of the accounting data in the reports to supporting detail documentation
Director allowed Wilson to take on the added duties and responsibilities
The Chief Deputy did all the cash-activities like input form, collected cash, reconciled, input the management
data, carried the checks (money) to the bank.
Did unusual things in Wilsons performance like be very jealous and overly protective of the various tasks she
performed
Changing in Chief Deputys behavior and her personal life.
Wilson also made changes in cash sheet and told her employee that the changes had been made to correct
the number in the reports that prepared by her employee.

Employees in County Office failed to place much emphasis on these red flags because there is no
whistleblowing system that established in the company. Beside that the Director were closely related to the Chief
Deputy who occurred the fraud. The Director was too nave to believe 100% with Chief Deputys job. She didnt have
a professional skepticism mind while doing her job.

To prevent future occurrences of this situation, the company should adding internal auditor, strengthening the
internal control and establishing the whistleblowing system to the company.

3. Bar Graph

4. Information to refute Charles Argument

Changes in his wifes personal life and behavior like took a lot of trips to different locations during the year
and during the summer, for them who was local chiropractor indicates that Charles must be known about his
wifes alterability.
 Both Wilsons (Joan and Charles) committed themselves to various obligations during these same periods. On
the average, the recurring monthly payments for home mortgage, car, payments, insurance, credit card, etc.,
were $5.976 per month where their average net paycheck seems not meet their obligations. This information
shows that both Wilsons need additional income to fulfill their liabilities.
Early in 1993, Charles Wilson prepared and filed a personal financial statement that showing personal income
and cash flows for the year ended 1992 and projected income and cash flows for the year ended 1993. These
activities signify that Charles certainly knows about his family financial condition.

5. Role of Internal Auditor

This case appeared because there are several weaknesses of internal control and there is no internal auditor
who asses the internal control in the office. In addition, there is no whistleblowing system that provides the
employee to express their concern about fraud, especially if their boss conducts a fraud.

Internal auditor would help the Director to detect indication of fraud as early as possible because the Chief
Deputy conducts an action that clearly can be seen as fraud. It cannot be detected because the employee fear to
question about that and the Director is closely related to Chief Deputy so she will trust whatever the Chief Deputys
done in the company. Internal audit as an independent party can conduct the audit to detect suspicious action and
assess the internal control especially we can see that Chief Deputy conduct so many jobs. The Chief Deputy would
be disinclined to conduct the fraud by herself if there is an internal audit staff in the company.

Moreover, internal audit staff can obtain a report from the employee to run a whistleblowing system. The
employee who knows the indication of fraud can tell to the internal audit so they can conduct further investigation.
 To sum up, internal auditor not only could do many functions related to monitor and evaluate the internal
control in the company in terms of fraud, but also internal auditor could give recommendations to make the
company run the business effectively and efficiently.