Case 6.1: the Greater Providence Deposit & Trust Embezzlement

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Assignment # 1 Case 6.1 The Greater Providence Deposit & Trust Embezzlement Accounting Information Systems – ACC 564 Professor Jim Ridilla October 23, 2011 Discuss how Greater Providence Deposit & Trust might improve its control procedures over the disbursement of loan funds to minimize the risk of this type of fraud. Segregation of duties is a fundamental element of internal control in any company. No single employee should be given too much responsibility over certain business transactions or processes. When one person in an organization has too much control or access over these responsibilities, problems can and often do arise. In the case of The Greater Providence Deposit & Trust, James Guisti was a…show more content…
Even though it is accepted industry practice for the bank manager to authorize loans up to a certain dollar amount, in this case $25,000, the procedures for processing a loan should require the attention of more than one person. If the amount of the loan does not require approval from the bank’s headquarters, it should still be reviewed by the controller of the local branch. This will further discourage bogus loans and reduce the risk of embezzlement. Discuss how Greater Providence might improve its loan review procedures at bank headquarters to minimize its fraud risk. As demonstrated in this case, the amount of the loan does not always indicate the presence of fraud. An automated system that checks all loans, not just loans for large amounts, for proper authorizations, documentation and paperwork should be established. Any loans that are processed through the system that are missing any type of information or that have information that matches existing loans would be flagged and double checked for irregularities. Background checks should be required for all bank employees. The background check should include criminal and financial records. Unusual changes in credit reports, such as sudden spikes in outstanding consumer debt or unusual high past-due accounts should be examined. Financial information of current employees displaying possessions of

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