Bret attempted to conceal theft in the cash book using different ways. First, he miscalculated the figures in the bank reconciliation statements and came up with misleading values that showed that the bank statement reconciled. The outstanding checks that he used in the bank reconciliation, he indicated that they had a total of $ 482.79 instead of the right total value of the three checks that should have been $ 582.79. The miscalculation of the figures showed that the bank reconciliation statement was balancing, yet it should have had an outstanding value of checks that are not deposited of $ 100. By using miscalculation, Bret took advantage of the weak internal systems that may not have an internal audit or any form of independent review. The balancing of the bank reconciliation statement may be seen as a satisfying factor that would conceal the theft. Secondly, he used omission of some entries in the bank reconciliation statement. The outstanding checks that were omitted amounted to a total of $ 574. The omission helped him to reduce the chances on of identifying the high amount of deficit that resulted from the scandal. The trick of omitting some entries also helps in the process of ensuring that in case an error is made one can defend themselves by identifying other mistakes and take it as simply as an accounting error that needs correction. The use of other errors committed to conceal theft gives the thief a chance to look at other loopholes to cover theft in case the initial method was identified.
The bank statement for Daisey Company for the month did not balance and had a suspense balance of $ 674. The deficit in the amount indicates that there is a possibility of previous months unbalanced bank reconciliation statement or unreported incidences involving cash. The failure for the current months bank reconciliation statement to balance is an indication of that there are unrecorded cash transaction or events for the period that were not identified. The method of failing to disclose all activities involving cash may be a method of hiding theft that has taken place currently or in the past. Bret did not present all the information about cash activities in the period resulting in the suspense balance in the bank reconciliation statement. The suspense balance indicates that there is cash that was not deposited in the bank or checks that were outstanding but were not disclosed. Though the method may seem similar to the one of omission, it is ways that make it very hard for one to trace possible theft because the deficit may take different forms such as unrecorded bank charges or bounced checks.
Violated principles of internal control
Daisey Company has failed to have in place several principles of an internal control system that need to be in place to prevent fraud and errors in accounting. First, there should be segregation of duties. Separation of duties ensures that the record keeping, recording are kept separated, and on the top cashier, activities are done by entirely different people. It is an internal control measure that prevents thefts because the person doing recording cannot alter records in future because of they in a care of a different person. On top, the person keeping cash not being the one recording and keeping the records ensure that fraud cannot easily take place because the daily records were done should reconcile with the amount banked. Daisey Company has failed to segregate the three duties and gives the accountant an avenue for concealing a fraud. There some of the scandals and cases of theft may even go unnoticed if cash is collected and no recording is done. The job specifications of Bret expose the company to a theft that can be tough to trace if the employees take advantage of the loopholes. In a case of where segregation has been done, and three employees perform the required duties, the only way a fraudulent theft can take place is through the collusion of employees that is relatively harder than when one employee is performing all the three duties.
An organization should practice job rotation to ensure that there is a strong internal control system in place. Job rotation prevents possible collusion of employees to embezzle funds because employees do not get enough time to collude with each other. Daisey Company does not practices job rotation and gives employees time to carry out activities such as leading and lagging. The possibility of the bookkeeper being able to collect cash and finally decide to use it to his advantage shows that he had confidence that there he would continue carrying out his duties and not body else would discover the scandal. In job rotation, the employees should be rotated from one department to the other, and the reshuffling should be done in a way that ensures that employees do not move to the same unit as a group. Employees should be entitled to compulsory leave, and the management of the organization should avoid paying an employee for them not to take a vacation. When an employee is away on vacation or is about to go for one, it is possible to identify any concealed theft in when they are resisting going or acting in suspicious ways.
There should be an independent examination of what one has done in the performance of their duties. Independent studies should be done regularly. The regular reviews should be a surprise to the person performing certain functions, and they should not have a defined sequence. The independent reviews scare employees away from being involved in fraud because they are aware it can be discovered anytime. In Daisey Company, there is no indication that independent reviews are done on work done. The in depended reviews would look into reasons for discrepancies in cases of reconciliation and would assist to identify possible theft that may take place in a company. In the allowing one to review their personal work exposes the company to fraudulent record keeping and other forms of theft. Companies should have internal audit team that should foresee the independent reviews and if possible get the services from an external service provider to ensure that those doing the review are changed regularly. Failure to rotate the people doing reviews may expose the company to a possible fraud activity when employees collude with each other. Also, after doing a review for long, one becomes familiar and may have familiarity issues that may lead to failure to identify possible theft cases.
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