The Goodner Brothers Case

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Background

The case is based on a story of a gambler Woody Robinson, working as a sales representative in Huntington for a major tire-selling company – Goodner Brothers.

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After compiling a debt of nearly $50,000, Woody decided to create a scam and steal from his employers. Not only he sold the tires for cash and kept the profit, he also involved and blindsided his childhood friend Al Hunt by selling him significant amounts of the product.

The annual inventory count showed much lower numbers than it was expected by $143,000. The company was forced to hire an audit investigator.

The inspection revealed a lack of internal control and many suspicious issues that involved Woody Robinson.

As a result, Mr. Robinson was fired, and the company filed a lawsuit against him.

List what you believe should have been the three to five key internal control objectives of Goodner’s Huntington sales officer.

First internal control objective that should have been implemented is the reliability of financial reporting.

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The principle of a useful financial statement is its accuracy and reliability. It must be filed on time and provide a precise record of all conducted transitions as well as be checked for any misstatement in the financial records. The physical safety of the financial statements must be highly prioritized, which was ignored by the Goodner Brothers. In their case, unqualified people could easily access the economic database of the company.

Secondly, periodical employee-reviews, as one of the internal control objectives, would have helped to identify Mr. Robinson’s fraud much faster if they were based on the complaints from his colleagues. Such a method would be sufficient for discovering the weaknesses in the company and would allow them to identify problems on the earlier stages.

Third internal control method should be increasing security systems t the warehouse.

Setting up additional cameras and hiring people to watch the warehouse would decrease the risk of stealing tires in the case of the Goodner Brothers, holding accountable for each sold tire will secure the transactions of who and when took the products.

Similarly, the computers must have specific systems for everyone accessing the files. Securing the programs with individual passwords for each level of accessibility for the employees would make the financial system more reliable.

Lastly, changing the system of reconciliation would be beneficial for the company. Instead of sales managers or delivery employees checking the availability of inventory, independent auditors must be hired to do so. That way, such people have no particular interest in the products and can objectively assess all items, or conduct a secondary evaluation.

List the key internal control weaknesses that were evident in the Huntington unit’s operations.

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Huntington unit had many weaknesses that led to such significant losses of inventory.

First – notable lack of security in the warehouses. Such large amounts of the products were easy to steal, which is unacceptable for such a big firm.

The owners reliability on the employees’ honesty is a naive strategy for a big company; trust is appropriate; thus, periodical check-ups are crucial for maintaining the reputation.

Thirdly, Goodner Brothers neglected to install proper software for accounting, which was easy to access and alter that led to significant misstatements.

The fact that both the accountant and sales representative had access to highly important programs indicated vague duties segregations, which is unacceptable for major enterprises.

No interest in employee performance or reliability from top management is one of the most significant factors leading to the case with Woody Robinson.

Lastly, there were evident dissatisfaction from the customers, which the top management would identify if they had a feedback system.

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Develop one or more control policies or procedures to alleviate the control weaknesses.

One of the essential control policies that must be implemented in the Goodner Brothers business is Highly-controlled security.

Installing several cameras and night-vision equipment along with hiring more security on the locations will decrease the risk of missing products. Warehouse access must be provided only by the key card system, so in case of any conflict situations, it would be easier to identify the guilty person.

The employees should be checked periodically; moreover, sales managers must provide detailed reports of each sold product; therefore, the possibility of them doing any unauthorized operations would be eliminated.

The accounting system must be under the strictest security, and only authorized employees must have an ability to access it with specific cards or passwords; hence, the likelihood of financial reports alterations is impossible.

Strict Segregation of Duties

Evident lack of duties segregation was one of the main factors why it was so easy to make unauthorized operations in the Goodner Brothers. Mr. Robinson used his privilege to access the accounting system, adjust inventory amounts and customer’s accounts. Therefore, stricter policies to the system must be made.

Only the bookkeepers should be allowed to access the accounting software because they contain private information of both the company and clients.

Any operations by other employees cannot be provided without the authorization of the superior managers.

Each employee must have a specific amount of responsibilities that he/she cannot overstep. The company desperately needs to implement this policy in order to avoid future violations.

Besides Woody Robinson, what other parties were at least partially responsible for the inventory losses Goodner suffered?

There are several other parties who failed to recognize suspicious activities going on in the company, which could have been reported and eliminated sooner.

  1. Felix Garcia – the sales manager. As a sales manager, Mr. Garcia must have taken more action and do a check-up on Mr. Robinson after numerous complaints from the customers were filled. The lack of attention to his employees and their performance is one of the main factors why the discrepancies were not identified timely.
  2. Internal Auditor. He should have examined the internal control procedures himself instead of trusting the manager’s words. If the auditor would have noticed how weak and insecure the accounting software was, the change made to increase its security would lower the chances of the fraud being committed. The company who did not properly conduct the audit report is partially responsible for what happened.
  3. Al Hunt. Woody’s friend was already suspicious about heavily discounted prices on the tires he was buying form Robinson, however, did not take any action to follow-up on these uncertainties. Moreover, as the owner of Curcio’s tire, Al should have conducted a thorough investigation of why they are so cheap and where the tires come from. Therefore, he not only helped Woody operate his fraud but also jeopardized his career and integrity of a company.
  4. The Goodner Brothers company. Weak Internal control system, relying on the employees’ honesty, indistinctive segregation of duties and easy-to-access accounting system, all these factors allowed Robinson to steal the tires from the company. Such small but essential internal objectives form the company’s security and assure its safety, which the Goodner Brothers neglected.

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BusinessEssay. (2022, September 14). The Goodner Brothers Case. Retrieved from https://business-essay.com/the-goodner-brothers-case/

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BusinessEssay. (2022) 'The Goodner Brothers Case'. 14 September.

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BusinessEssay. 2022. "The Goodner Brothers Case." September 14, 2022. https://business-essay.com/the-goodner-brothers-case/.

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BusinessEssay. "The Goodner Brothers Case." September 14, 2022. https://business-essay.com/the-goodner-brothers-case/.