The internal controls of Tallahassee Bean Counters were very weak. Therefore, they created opportunities that employees could use to commit fraud in TBC. In addition to this, TBC financial records had never been audited before. As a result, the chances of employees committing fraud were high. Some employees committed fraud and the owner had not caught any perpetrators. However, a whistle blower informed Franklin Kennedy about the frauds being committed in his organization. In an investigation performed on the accounting records of Tallahassee Bean Counters three main types of fraud could occur have occurred. These types of fraud include ghost employee schemes, ticket fraud, and purchases &sales fraud.
Crumbley (2001) indicated that one of the ways of detecting fraud is by looking at the major funds in the organization. Any losses in revenue that occur in excess of 1.5% should be investigated. In case of expenditures, management or internal auditors must also investigate any increases that occur in excess of 1.5%. Other financial analysts use variation ratios to detect any form of fraud that may occur in an organization (Crumbley, 2001). In this case, the balance of the funds is compared to the income of the company. The greater the balance the lesser the chances of fraud.
Ghost Employee Scheme
A ghost employee scheme is a method of defrauding a company by adding extra employees in the payroll without the knowledge of top management or owner. Perpetrators of this crime do it intentionally with aim of gaining personal benefits. In cases where the controls are strong, this scheme involves collaboration among a number of individuals to ensure that it works properly. The idea of ghost workers is not new and most unmonitored employees with sufficient power can use this scheme to defraud a company.
This crime usually goes unnoticed and persons with vested interest in the organization can only detect it if proper internal controls are put in place. Moreover, proper auditing needs to be carried out regularly in order to identify the irregularities in accounts. In order for the ghost employee scheme to occur effectively, four very important things must be in existence. Things include:
- The ghost employees must for part of the payroll
- Time keeping and other important employee data such as wage rate must be collected
- The employees must receive their salaries / pay check
- The salary is usually collected by the perpetrator/ perpetrators of this fraudulent scheme
Forgery that involves incorporating ghost workers into the company system may be perpetrated using modern equipment and technology such as computers. In this case, perpetrators may exploit the implementation new computer technologies to engage in criminal activities that will enhance their financial gains. Forgery of employee records using a computer tends to be complex and highly sophisticated. Therefore, it is difficult to detect such forgeries. Apart from taking advantage of a new system, employees can just take the advantage of poor controls to commit acts of forgery in an organization. Therefore, this kind of forgery can also occur on the paperwork that contains employee information. In the case of Tallahassee Bean counters, the employees took advantage of a slack management and poor internal control to defraud the company. Among the methods, that the perpetrators might have used is forging the payroll.
It is usually easy to determine who the perpetrator of the fraudulent activity is while using the four elements that contribute to a successful ghost employee scheme. To begin with, we can determine the people who have the power of adding employee to the pay roll. In our case, the persons with the power to add the employees in the payroll include the supervisors, Candance Larson, and Ben Hill. However, the fact that both the supervisors and Candance are monitored by a higher power shows that they have a lower probability of adding any names to the payroll. This therefore leaves Ben Hill as the best candidate who can add ghost workers in the payroll. This is because he has the last say in verification of the pay roll. Moreover, no one monitors his activities when he verifies the pay roll. Therefore, Ben Hill has all the time he needs to add names on the pay roll and collect their salary. However, this does not eliminate the probability of cooperation between Candance and Hill.
Ben Hill raises suspicion on the way he conducts his private life. The article revealed that Mr. Hill likes partying and fancy dressing. In addition to that, Hill oversees the verification of the employee payroll from almost all revenue-earning activities in the organization and keeps the same in his office before making deposits. His fancy life style requires high spending and since he can access most of the company resources, he may be tempted to forge records in order to increase his earning. If we check his bank records, the only notable withdrawal is $ 500 per month for childcare. This raises suspicion since to sustain such a lifestyle Ben Hill requires to withdraw more than $500.
As aforementioned, forgery of employee records is a crime mostly committed against a company or entity by people in positions of power. Such individuals usually have access to sensitive financial or business information, like the payroll, which they can manipulate in order to accrue monetary gain. Payroll manipulation may for instance involve corporate officers like Ben Hill, who exploit the knowledge on financial trends of a company to forge documents. The economic implication of such an activity includes substantial decrease in amounts net revenue and increased expense. The net revenue of the company reduces because ghost workers in the company add to the existing expenses of the company.
Manipulation of records is one of the most difficult financial crimes to detect especially when the auditor is only using substantive tests. An audit is usually subject to risks that may be unavoidable, especially when management or the perpetrator makes a great effort to conceal the crime. Therefore, the probability of an auditor not detecting crime of misstatements resulting from fraud is very high. This is because the perpetrators take a great deal of time and effort to ensure that the crime is properly concealed.
This sort of crime occurs when the people entrusted with the sales of tickets fraudulently misappropriates them or finds a means of surpassing the internal controls to use the tickets in satisfying their own interests. This crime is usually committed by an employee who has the ability to obtain and sell tickets from the organization. The crime dealing with tickets can easily occur in any firm that sells tickets to raise revenues. In most cases, the person accountable for the tickets sales is usually responsible for the fraudulent activity. He or she usually gets involved in several activities that can be used to cover fraud. Ticket fraud is a white collar crime since no force is usually used. Therefore, when determining the perpetrator of such a crime the auditor usually looks for the person with sufficient power to run a ticket syndicate.
In Tallahassee Bean Counters case, several people could be held liable to for the fraud committed in the ticket booth. There are high chances that the women working at the ticket booth have devised a way that they use to defraud the organization. Since attendance records are determined using the number of tickets sold at the gate where nobody actually ensures that each person is issued with a ticket, it is possible that some clients are not issued with tickets. The probability of ticket fraud at the gate is high and the women working there know that there are no controls. Moreover, these women have worked together for a long time. Therefore, they have created a rapport and can easily collude to defraud the organization.
The scandal at the ticket booth is well organized and the women at the booth have found a loophole that they can exploit. For instance, the women say that some clients preordered their tickets. This way they can allow their friend to enter without paying. If asked, these women say that, customers without tickets had prepaid for the tickets. In addition to this, at the parking lot, the workers tend to receive money from the clients. They then place the tickets under the windshield wiper of the cars, but since there are no controls, there is nobody who can verify that the right tickets were actually placed. Sometimes they may receive money and let the vehicle go without placing the receipt at all. Moreover, the personnel at the gate could easily issue the tickets and receive money for larger vehicle while actually issuing receipts for smaller vehicles. One hour into the game, the parking personnel leave and there is no system in place to cater for vehicles arriving after that time. This represents lost revenue to the company.
The evidence of intent in the ticket booth lies in the fact the place lacks any meaningful control. Moreover, the women at the booth are familiar with each other since the women are very comfortable in enough to discuss grandchildren. It is common knowledge that everybody needs money. Therefore, employees at the gate may collude to defraud the organization in order to earn extra income. The parking personnel may also defraud the organization on the same grounds. Moreover, lack of controls is in its own way a motivator that facilitates fraudulent activities in an entity. The probability of fraud occurring in poorly controlled organization is high since no one cares whether there is accountability in every section or not.
Fraud in the ticketing section has various economic implications to the operations of the company. To begin with, it reduces the general levels of income that the company expects to receive if it is running smoothly. In addition to this, the club may suffer losses due to the decrease in revenue level caused by fraud. Therefore, reduces the economic viability of an entity.
Purchases and Sales Fraud
Any organization that lacks proper purchases control could be a victim of supplier’s fraud. In the present world, the employees swindle their employer’s businesses while colluding with suppliers. TBC may also be a victim of equipment purchase and sales fraud. The programs issue represents an area where the likelihood of fraud is high due to lack of sufficient internal controls. For instance, the total number of programs bought is rarely taken into account. Therefore, determination of the number of programs sold per game is hard to pinpoint with certainty. The fact that Ben and Candice divide the number of tickets issued by the selling price to get the number of programs sold makes the information on sales inaccurate. This is because the sales people may fail to issue receipts for some programs and keep the money received thus depriving the company some income. Besides this fact, the actual level of inventory at the end of each game is usually not recorded. Furthermore, Phil just brings the receipts of expenses for payment and nobody confirms the authenticity. Therefore, Phil can easily collude with the supplier given that he uses the same suppliers each time.
Sometimes companies may fail in achieving their vision when persons in position of power disregard the control system like in the case of TBC. Employees who disregard company rules tend to ignore simple ethics. These employees manipulation financial statements and defraud the company for personal gains. This proves that manipulators and controllers of the company exploit the vulnerability of the controls in order to get personal benefits. Fraud conspirators usually eliminate all ethical principles that govern the business environment in order to accomplish personal goals and objectives. Therefore, the question of intent of a fraud perpetrator is not usually determined by the lifestyle of an individual. It may also be determined by the strengths and weaknesses of internal control. In cases where the controls are weak most workers will be tempted to defraud the company in order to increase their earnings.
Irregularities in the sales value of a business may have several economical implications. To begin with, understatement in sales may lead to understated profits. Therefore, all the management accounts will be wrong and this may in turn lead to loss of assets. Auditing such accounts will lead to the auditor stating that the entity’s accounts do not portray a true and a fair view. Moreover, understated sales may increase the probability of a company falling into bad debts. Increase in bad debts generally leads to increase in conflicts between suppliers and the business entity.
The controls installed in Tallahassee are clearly weak. Moreover, they are not working in the organization’s interest. Therefore, the probability of staff committing fraud is high. Members of staff can commit a variety of crimes within an institution. From observation of the internal control methods and the financial records provided, we were able to identify potential fraud cases that the staff could commit without the owners knowledge. Some of the potential frauds identified include addition of ghost workers in the payroll, ticket fraud, and purchases &sales fraud. A ghost employee scheme is a method of defrauding a company where a person in power adds extra employees in the payroll. Perpetrators of this crime do it intentionally and it may involve collaboration among a number of individuals to ensure that it works properly.
Crumbley, L. (2001). Forensic Accounting, Forensic Techniques, and Fraud Detection. Journal of Forensic Accounting: Auditing, Fraud, and Taxation, 1(1), pp. 224-300