Alec Rubino is the sole owner of Spectra Medical Instruments (Spectra), a small but successful distributor of medical supplies. Alec inherited the business from his father and is not really interested in running it on a day-to-day basis. Alec hired John Winter, CPA, to be the controller/general manager of the business three months ago so Alec could spend more time traveling. Alec was very impressed with John's ability to manage both the accounting and the business. John was always the first one to arrive at work and the last one to leave, and never asked for time off. Alec added John as an authorized signor on the company's checking account so that bills could be paid when he traveled. John told Alec he would ensure the cash is accurate by performing a monthly bank reconciliation. Once Alec started traveling, John would e-mail him the monthly income statement and balance sheet. Alec never liked reading accounting reports, and did not really understand them, but did notice that the net income was a few thousand less each month after he left. After a few more months of similar results, Alec decided to discuss the decline in profits with a business acquaintance, after which Alec decided to have an audit performed by a reputable local CPA firm. Two weeks prior to the start of the audit, John asked for a few days off and Alec granted his request. John never returned. Calls to his cell phone were answered by a recording stating the phone number was no longer in use. A subsequent investigation by the CPA firm revealed John had stolen over $50,000 during his time at Spectra. John had created a fictitious company and billed Spectra for office supplies and small equipment purchases that were never delivered. John received and authorized the invoices from his fictitious company, entered them in Spectra's accounting system, and paid them routinely from Spectra's checking account. REQUIREMENTS: • Discuss the weaknesses in internal control allowing John to carry out this fraud.
Alec Rubino is the sole owner of Spectra Medical Instruments (Spectra), a small but successful distributor of medical supplies. Alec inherited the business from his father and is not really interested in running it on a day-to-day basis. Alec hired John Winter, CPA, to be the controller/general manager of the business three months ago so Alec could spend more time traveling. Alec was very impressed with John's ability to manage both the accounting and the business. John was always the first one to arrive at work and the last one to leave, and never asked for time off. Alec added John as an authorized signor on the company's checking account so that bills could be paid when he traveled. John told Alec he would ensure the cash is accurate by performing a monthly bank reconciliation. Once Alec started traveling, John would e-mail him the monthly income statement and balance sheet. Alec never liked reading accounting reports, and did not really understand them, but did notice that the net income was a few thousand less each month after he left. After a few more months of similar results, Alec decided to discuss the decline in profits with a business acquaintance, after which Alec decided to have an audit performed by a reputable local CPA firm. Two weeks prior to the start of the audit, John asked for a few days off and Alec granted his request. John never returned. Calls to his cell phone were answered by a recording stating the phone number was no longer in use. A subsequent investigation by the CPA firm revealed John had stolen over $50,000 during his time at Spectra. John had created a fictitious company and billed Spectra for office supplies and small equipment purchases that were never delivered. John received and authorized the invoices from his fictitious company, entered them in Spectra's accounting system, and paid them routinely from Spectra's checking account. REQUIREMENTS: • Discuss the weaknesses in internal control allowing John to carry out this fraud.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Alec Rubino is the sole owner of Spectra Medical Instruments (Spectra), a small but successful distributor of medical
supplies. Alec inherited the business from his father and is not really interested in running it on a day-to-day basis. Alec
hired John Winter, CPA, to be the controller/general manager of the business three months ago so Alec could spend
more time traveling.
Alec was very impressed with John's ability to manage both the accounting and the business. John was always the first
one to arrive at work and the last one to leave, and never asked for time off.
Alec added John as an authorized signor on the company's checking account so that bills could be paid when he
traveled. John told Alec he would ensure the cash is accurate by performing a monthly bank reconciliation.
Once Alec started traveling, John would e-mail him the monthly income statement and balance sheet. Alec never liked
reading accounting reports, and did not really understand them, but did notice that the net income was a few thousand
less each month after he left. After a few more months of similar results, Alec decided to discuss the decline in profits
with a business acquaintance, after which Alec decided to have an audit performed by a reputable local CPA firm.
Two weeks prior to the start of the audit, John asked for a few days off and Alec granted his request. John never
returned. Calls to his cell phone were answered by a recording stating the phone number was no longer in use.
A subsequent investigation by the CPA firm revealed John had stolen over $50,000 during his time at Spectra. John had
created a fictitious company and billed Spectra for office supplies and small equipment purchases that were never
delivered. John received and authorized the invoices from his fictitious company, entered them in Spectra's accounting
system, and paid them routinely from Spectra's checking account.
REQUIREMENTS:
• Discuss the weaknesses in internal control allowing John to carry out this fraud.
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