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 accounts receivable department, where the customer accoun
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
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 accounts receivable
updated were reconciled each night to ensure that 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 accounts receivable 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
again?
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