Internal Control: Internal control refers to the policies, and plans of the business organization along with other measures with a view to safeguard its assets, encourage the employees to adhere to the plans, to improve on the operational efficiency, and to ensure correct and reliable accounting information. Internal control is a process which ensures continuous reliability of accomplishment of a company’s objectives, related to operations, financial reporting, and in conformity with laws and regulations. The following are the some of the internal control procedures: Competent personnel, rotating duties, and mandatory vacations Separating responsibilities for related operations Separating operations, custody of assets, and accounting Proofs and security measures To state: the reasons for discovering the fraud very late.

Question

Internal Controls An employee of JHT Co., a private trucking company, was responsible for resolving roadway accident claims under $25,000. The employee created fake accident claims and wrote settlement checks between $5,000 and $25,000 to friends or acquaintances acting as phony “victims.” One friend recruited subordinates at his place of business to cash some of the checks. In addition, the JHT employee also recruited lawyers, who he paid to represent both the trucking company and the fake victims in the bogus accident settlements. When the lawyers cashed the checks, they allegedly split the money with the corrupt JHT employee. This fraud went undetected for two years. Please answer the following questions: What weaknesses in internal control contributed to this fraud? Why would it take so long to discover such a fraud? What control procedures should be changed to prevent such fraud?

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Question

Chapter 8, Problem 8.6EX

To determine

Internal Control: Internal control refers to the policies, and plans of the business organization along with other measures with a view to safeguard its assets, encourage the employees to adhere to the plans, to improve on the operational efficiency, and to ensure correct and reliable accounting information. Internal control is a process which ensures continuous reliability of accomplishment of a company’s objectives, related to operations, financial reporting, and in conformity with laws and regulations.

The following are the some of the internal control procedures:

Competent personnel, rotating duties, and mandatory vacations

Separating responsibilities for related operations

Separating operations, custody of assets, and accounting

Proofs and security measures

To state: the reasons for discovering the fraud very late.

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Internal Controls An employee of JHT Co., a private trucking company, was responsible for resolving roadway accident claims under $25,000. The employee created fake accident claims and wrote settlement checks between $5,000 and $25,000 to friends or acquaintances acting as phony “victims.” One friend recruited subordinates at his place of business to cash some of the checks. In addition, the JHT employee also recruited lawyers, who he paid to represent both the trucking company and the fake victims in the bogus accident settlements. When the lawyers cashed the checks, they allegedly split the money with the corrupt JHT employee. This fraud went undetected for two years. Please answer the following questions: What weaknesses in internal control contributed to this fraud? Why would it take so long to discover such a fraud? What control procedures should be changed to prevent such fraud?

Internal Controls An employee of JHT Co., a private trucking company, was responsible for resolving roadway accident claims under $25,000. The employee created fake accident claims and wrote settlement checks between $5,000 and $25,000 to friends or acquaintances acting as phony “victims.” One friend recruited subordinates at his place of business to cash some of the checks. In addition, the JHT employee also recruited lawyers, who he paid to represent both the trucking company and the fake victims in the bogus accident settlements. When the lawyers cashed the checks, they allegedly split the money with the corrupt JHT employee. This fraud went undetected for two years. Please answer the following question: What control procedures should be changed to prevent such fraud?

An employee of JHT Holdings, Inc., a trucking company, was responsible for resolving roadway accident claims under $25,000. The employee created fake accident claims and wrote settlement checks of between $5,000 and $25,000 to friends or acquaintances acting as phony “victims.” One friend recruited subordinates at his place of work to cash some of the checks. Beyond this, the JHT employee also recruited lawyers, whom hepaid to represent both the trucking company and the fake victims in the bogus accident settlements. When the lawyers cashed the checks, they allegedly split the money with the corrupt JHT employee. This fraud went undetected for two years.Why would it take so long to discover such a fraud?