Case 3.5 Goodner Brothers, Inc.
To better understand the nature at which fraud can occur in a business, specifically due to weak internal controls, and to examine the characteristics of a fraudster.
* Goodner Brothers, Inc.’s sloppy accounting practices and lax control over its inventory opened doors for theft and other types of fraud to occur internally
* The lack of attention and importance that Goodner Brothers, Inc. put into their internal control system in order to cut corners
* The importance of proper and professional auditing procedures in detecting fraudulent activity in a company
PROBLEMS FACED IN COMPLETING THE CASE:
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Although extensive background checks are performed upon hiring, trust within the employees is something that should be earned not automatically given upon being hired.
* Computerized accounting systems are used at each Goodner sales outlets; the system records the sales and purchase of transactions. The bookkeeper and sales representatives are responsible for the proper recording of transactions.
2. Internal control weaknesses:
* The large number of volume of sales and purchases often swamped the unrestricted accounting system in Goodner causing unauthorized individuals to authorize purchase orders.
* The recording transactions did not occur in a timely manner. The records were often jotted down on scrap papers by sales representatives and therefore given that way to the bookkeeper.
* Lack of separation of duties was a major weakness in the internal control of Goodner; often the wrong people were serving as bookkeepers and were in a position to be in control of the company’s internal controls.
* Lack of managerial overview of continuous customer complaints from a certain sales representative. The documents of...