MAIL ROOM FRAUD AND INTERNAL CONTROLSarat Sethi, a professional criminal, took a job as a mail room clerk at Benson &Abernathy and Company, a large department store. The mail room was an extremelyhectic work environment consisting of a supervisor and 45 clerks. The clerks wereresponsible for handling promotional mailings, catalogs, and interoffice mail, as wellas receiving and distributing a wide range of outside correspondence to variousinternal departments. One of Sethi’s jobs was to open cash receipts envelopes fromcustomers making payments on their credit card balances. He separated theremittance advices (the bills) and the checks into two piles. He then sent remittanceadvices to the AR department, where the customer accounts were updated to reflectthe payment. He sent the checks to the cash receipts department, where they wererecorded in the cash journal and then deposited in the bank. Batch totals of cashreceived and accounts receivable updated were reconciled each night to ensure thateverything was accounted for. Nevertheless, over a one-month period, Sethi managedto steal $100,000 in customer payments and then left the state without warning.The fraud occurred as follows: Because the name of the company was rather long,some people had adopted the habit of making out checks simply to Benson. Sethi hada false identification prepared in the name of John Benson. Whenever he came acrossa check made out to Benson, he would steal it along with the remittance advice.Sometimes people would even leave the payee section on the check blank. He alsostole these checks. He would then modify the checks to make them payable to J Benson and cash them. Because the AR department received no remittance advice,the end-of-day reconciliation with cash received disclosed no discrepancies.Requireda. This seems like a foolproof scheme. Why did Sethi limit himself to only one month’sactivity before leaving town?b. What controls could Benson & Abernathy implement to prevent this fromhappening a
MAIL ROOM FRAUD AND INTERNAL CONTROL
Sarat Sethi, a professional criminal, took a job as a mail room clerk at Benson &
Abernathy and Company, a large department store. The mail room was an extremely
hectic work environment consisting of a supervisor and 45 clerks. The clerks were
responsible for handling promotional mailings, catalogs, and interoffice mail, as well
as receiving and distributing a wide range of outside correspondence to various
internal departments. One of Sethi’s jobs was to open cash receipts envelopes from
customers making payments on their credit card balances. He separated the
remittance advices (the bills) and the checks into two piles. He then sent remittance
advices to the AR department, where the customer accounts were updated to reflect
the payment. He sent the checks to the cash receipts department, where they were
recorded in the cash journal and then deposited in the bank. Batch totals of cash
received and
everything was accounted for. Nevertheless, over a one-month period, Sethi managed
to steal $100,000 in customer payments and then left the state without warning.
The fraud occurred as follows: Because the name of the company was rather long,
some people had adopted the habit of making out checks simply to Benson. Sethi had
a false identification prepared in the name of John Benson. Whenever he came across
a check made out to Benson, he would steal it along with the remittance advice.
Sometimes people would even leave the payee section on the check blank. He also
stole these checks. He would then modify the checks to make them payable to J
Benson and cash them. Because the AR department received no remittance advice,
the end-of-day reconciliation with cash received disclosed no discrepancies.
Required
a. This seems like a foolproof scheme. Why did Sethi limit himself to only one month’s
activity before leaving town?
b. What controls could Benson & Abernathy implement to prevent this from
happening a
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