CASE 7-1 The Greater Providence Deposit & Trust Embezzlement Nino Moscardi, president of Greater Providence Deposit& Trust (GPD&T), received an anonymous note in hismail stating that a bank employee was making bogusloans. Moscardi asked the bank's internal auditors to in-vestigate the transactions detailed in the note. The investi-gation led to James Guisti, manager of a North Providencebranch office and a trusted 14-year employee who hadexamine all loans and generally focus on loans muchlarger than the ones in question. Second, Greater Provi-dence had recently dropped its computer services ar-rangement with a local bank in favor of an out-of-statebank. This changeover may have reduced the effective-ness of the bank's control procedures. Third, the bank'sloan review clerks were rotated frequently, making fol-low-up on questionable loans more difficult.Guisti was a frequent gambler and used the embez-zled money to pay gambling debts. The bank's lossestotaled $624,000, which was less than the $1.83 millionin bogus loans, because Guisti used a portion of theborrowed money to repay loans as they came due. Thebank's bonding company covered the loss.The bank experienced other adverse publicityprior to the fraud's discovery. First, the bank was fined$50,000 after pleading guilty to failure to report cashtransactions exceeding $10,000, which is a felony. Sec-ond, bank owners took the bank private after a lengthypublic battle with the State Attorney General, who al-leged that the bank inflated its assets and overestimatedits capital surplus to make its balance sheet look stron-ger. The bank denied this charge.once worked as one of the bank's internal auditors. Guistiwas charged with embezzling $1.83 million from the bankusing 67 phony loans taken out over a three-year period.Court documents revealed that the bogus loanswere 90-day notes requiring no collateral and ranging inamount from $10,000 to $63,500. Guisti originated theloans; when each one matured, he would take out a newloan, or rewrite the old one, to pay the principal and inter-est due. Some loans had been rewritten five or six times.The 67 loans were taken out by Guisti in five names,including his wife's maiden name, his father's name, andthe names of two friends. These people denied receivingstolen funds or knowing anything about the embezzle-ment. The fifth name was James Vanesse, who police saiddid not exist. The Social Security number on Vanesse'sloan application was issued to a female, and the phonenumber belonged to a North Providence auto dealer.Lucy Fraioli, a customer service representative whocosigned the checks, said Guisti was her supervisor andshe thought nothing was wrong with the checks, thoughshe did not know any of the people. Marcia Perfetto,head teller, told police she cashed checks for Guistimade out to four of the five persons. Asked whether shegave the money to Guisti when he gave her checks tocash, she answered, “Not all of the time," though shecould not recall ever having given the money directly toany of the four, whom she did not know.Guisti was authorized to make consumer loans upto a certain dollar limit without loan committee approv-als, which is a standard industry practice. Guisti's origi-nal lending limit was $10,000, the amount of his first1. How did Guisti commit the fraud, conceal it, andconvert the fraudulent actions to personal gain?2. Good internal controls require that the custody, re-cording, and authorization functions be separated.Explain which of those functions Guisti had and howthe failure to segregate them facilitated the fraud.3. Identify the preventive, detective, and correctivecontrols at GPD&T, and discuss whether they wereeffective.4. Explain the pressures, opportunities, and rational-izations that weresent in the Guisti fraud.5. Discuss how Greater Providence Deposit & Trustmight improve its control procedures over the dis-bursement of loan funds to minimize the risk of thistype of fraud. In what way does this case indicate alack of proper segregation of duties?6. Discuss how Greater Providence might improve itsloan review procedures at bank headquarters to mini-mize its fraud risk. Was it a good idea to rotate theassignments of loan review clerks? Why, or why not?7. Discuss whether Greater Providence's auditorsfraudulent loan. The dollar limit was later increased to$15,000 and then increased again to $25,000. Some ofthe loans, including the one for $63,500, far exceededhis lending limit. In addition, all loan applications shouldhave been accompanied by the applicant's credit his-tory report, purchased from an independent credit ratingfirm. The loan taken out in the fictitious name would notshould have been able to detect this fraud.have had a credit report and should have been flaggedby a loan review clerk at the bank's headquarters.News reports raised questions about why the fraudwas not detected earlier. State regulators and the bank's8. Are there any indications that the internal environ-ment at Greater Providence may have been defi-cient? If so, how could it have contributed to thisembezzlement?internal auditors failed to detect the fraud. Several rea-sons were given for the failure to find the fraud earlier.First, in checking for bad loans, bank auditors do notSource: John Kostrezewa, "Charge: Embezzlement," ProvidenceJournal-Bulletin (July 31, 1988): F-1.

Answer1. Commit: J was an old and trusted employee of the trust who held an influential position in…

How did Guisti commit the fraud, conceal it, and convert the fraudulent actions to personal gain? Good internal controls require that the custody, re- cording, and authorization functions be separated. Explain which of those functions Guisti had and how the failure to segregate them facilitated the fraud. Identify the preventive, detective, and corrective controls at GPD&T, and discuss whether they were effective.

How did Guisti commit the fraud, conceal it, and convert the fraudulent actions to personal gain? Good internal controls require that the custody, re- cording, and authorization functions be separated. Explain which of those functions Guisti had and how the failure to segregate them facilitated the fraud. Identify the preventive, detective, and corrective controls at GPD&T, and discuss whether they were effective.

Understanding Business

12th Edition

ISBN:9781259929434

Author:William Nickels

Publisher:William Nickels

Chapter1: Taking Risks And Making Profits Within The Dynamic Business Environment

Section: Chapter Questions

Problem 1CE

See similar textbooks

Similar questions

1. Life Company processes information furnished by others to transfer title to real estate from a seller to a buyer. In performing this task for a sale of land from Eren to Armin, the furnished information is mistaken. The contract between Eren and Armin that includes the mistake may be rescinded if the mistake concerns a. a detail on which the parties had a true “meeting of the minds.” b. a fact that is important and central to the contract. c. a third party, such as County Title. d. a term in the contract subject to only one reasonable interpretation.
QUESTION 1 Which of the following is a FALSE statement? A. The E-Sign Act completely prevents the use of electronic signatures for contracting on the Internet. B. If an employer wants to preserve the at-will employment status of his or her employees, the employer should insert disclaimers in its codes and handbooks that nothing therein can be construed to create an express or implied employment contract. C. A basic principle of the National Labor Relations Act is that employers cannot terminate employees in order to discourage or encourage union membership. D. “Going public” by a company offering to sell shares of stock to the public typically results in access to broader financial markets from which to obtain capital. QUESTION 2 1. The tort of assault and the tort of battery are: A. Two names for the exact same tort. B. Strict liability torts. C. Independent torts which can occur separately from one another. D. Require proof of each of the separate elements of negligence.…
Case 4 Jason, who has graduated from automotive program, and Gerry who is a businessman and entrepreneur entered into a partnership business of auto repair shop. In their partnership agreement, Gerry will provide on the financing and administration while Jason will act as active partner and in-charge of running the operations of the business. The agreement also stipulates that the firm should not engage in the buying and selling of vehicles. Due to financial needs, Jason sold a vehicle who belongs to a customer who had left it with the firm for repair and without the knowledge of the owner. Later, the car was recovered by the owner from Jack, who is the innocent buyer. Jack sued Jason for breach of implied condition under the contract of sale that the seller has clean title of the goods. Is Gerry liable of Jason’s misdeeds? Please state your reasons.
Subject: Law on Partnership and Corporations 1. Discuss briefly the kinds of powers that a corporation can exercise.
While on vacation in Ontario, your insured's automobile is broken into. The factory-installed AM/FM radio worth $500 is forcibly removed from the dashboard and a camera, valued at $400 is taken from the locked glove compartment. The thief also causes $400 damage to the automobile. The insured has O.A.P. 1 Owner's Policy with $500 deductible Comprehensive coverage. What would the automobile insurer pay in total? OA) $400.00 OB) $900.00 OC) $500.00 OD) $800.00
Cari enters a single-agency relationship with a listing broker, who owes her full disclosure and loyalty. The listing broker then finds Buyer Bonnie who wants that same broker to represent her in a transaction broker relationship, providing Bonnie with certain duties such as limited confidentiality. Can the broker represent Cari in a single-agency relationship AND represent Bonnie as a transaction broker in the same transaction? No, because offering Bonnie limited confidentiality would conflict with the full disclosure already owed to Cari. Yes, but only if the limited confidentiality owed to Bonnie is needed to fulfill Cari's objective of selling the property. Yes, as long as the broker tries to be fair to br + parties.
What is the principle of vicarious liability (respondeat superior)?
Purell Magazine Construction Fraud The Purell Magazine Construction Fraud case involves James Small, a facilities supervisor at Purell Magazine and Publishing House, who engaged in a sophisticated scheme of occupational fraud. Small was responsible for overseeing the painting operations as part of the company's conversion of its plant in Oakville, Ontario, into an office complex. This massive renovation project involved constructing an auditorium identical to one in the company's European offices. Small's fraudulent activities came to light when the vice president of administrative services, Richard Green, noticed forgeries in a stack of invoices related to the auditorium construction project. An initial investigation revealed that all the forgeries were in the painting division, with a budget of approximately $800,000 a year. Small, who earned about $30,000 a year, had been the only person overseeing the painting operations. Small's fraud scheme involved creating false invoices for…
ETHICS Pete, an accountant, recommended that several of his clients invest in Competition Aircraft. These clients passed this recommendation on to Arlene, who did invest. Unfortunately, Competition was a fraudulent company that pretended to sell airplanes. After the company went bankrupt, she sought to recover from Pete. Is Pete liable to Arlene? Whether or not Pete faces legal liability, is it a good idea for accountants to recommend investments to clients? Does that practice create any potential conflicts of interest?
Subject: Business Law and Regulations Topic: Nonstock Corporation 3. During the Annual Members meeting of Kampante Corporation, Jose a member nominated Atty. Joshua the retainer lawyer of the corporation citing as ground that due to the good legal representations of the latter for the corporation wants him to serve in the board as a trustee. Mr Kent objected on the ground that Atty. Joshua is not qualified not being a member thereat. a. Is the nomination by Joe of Atty. Joshua valid? b. Is the objection of Mr. Kent based on the ground cited meritorious?
1.Subject to the terms of the Deed of Trust, the Appointor of a trust can ordinarily nominate a replacement "Appointor " in their Will? True False 2.Which of the following structures would you recommend as a tool by which an individual after their death can ensure the continued care of a disabled family member, whilst ensuring it does not consequentially risk the continued entitled to pensions or other government entitlements? Testamentary trust Life interest Deed of Family Arrangement Family trust Superannuation fund 3. Subject to the terms of the Deed of Trust, an individual Trustee of a trust can ordinarily nominate a replacement "Trustee" in their Will? True or False?
Rebekah unknowingly grows illegal marijuana plants in her garden, assuming they are just weeds. If Rebekah is discovered growing the marijuana, strict liability would infer that: A. Rebekah is not liable if someone else was witnessed planting the marijuana B. Rebekah is not liable because she had no illegal intent C. Rebekah is liable only if she was found to be negligent in not recognizing the marijuana D. Rebekah is liable even though she had no illegal intent