CALDERON, REYNAN C. BSA-31A1
CASE STUDY(AIS)
BERN FLY ROD COMPANY
As I have read the case, I think the potential internal control issue and exposure is in
expense reimbursement and compensation which are both prone to employee fraud.
ISSUE AND EXPOSURE
In expense reimbursement, the issue takes place when the company does not require
its sales agents to submit supporting documents such as receipts of their travel expenses.
With this, the agent might just includes reimbursement of travel expense that are just based
on personal interest and not business related expense such as those which are not essential
in the ordinary course of business or those of outside the transaction. This will provide
opportunity for the employee to commit fraud specifically from reimbursement of expense.
PREVENTIVE MEASURES
Since the salespeople may also provide false details about the travel expense and take
the money as the expenses are submitted to a cash disbursement clerk who directly issues
them a check, the management should apply verification control which will require their
employee to submit together with their hard copy spreadsheet a receipt as a supporting
evidence. The receipt must be authorized by the one issuing it to prevent the sales person
from making one. With this, the sales person will not have the opportunity to record false or
inflated travel expense and thus, the risk of fraud would be prevented or minimize.
ISSUE AND EXPOSURE
In compensation, the issue takes place when once a sales person takes an order, it is
send directly to the cash disbursement department, where commissions are calculated and
paid. Sales staff compensation is tied directly to their sales. The order then sent to the billing
department where the sales is recorded, and finally to the shipping department for delivery
to the customer. Sales staff is also compensated for travel expense. Each week they submit a
hard copy spreadsheet of expense incurred to the cash disbursement clerk. The clerk
immediately writes a check to the salesperson for the amount indicated in the spreadsheet.
With this, sales staff may just falsely records the orders that they submit to the
reimbursement clerk.
PREVENTIVE MEASURES
Since there is a possibility that the salesperson might falsely record a sale as they are
paid upfront for taking orders from customers and hence the product are return later, the
management should apply segregation of duties since the case dies not mention who fills
out the orders that are submitted by the salesperson to the disbursement clerk for the
payment of sales commissions. The duty of filling out order forms must be separated from
the duty of the salesperson so that there can be a segregation of duty. Also, measures must
also be done to check whether the sales commission that these salespersons were receiving
reasonable and that these figures could possibly indicate the performance of such sales
person. By this, the salesperson's opportunity to manipulate the sales figures can be
minimized or prevented.
