Goodner Brothers Case
1.) List what you believe should have been the three to five key internal control objectives of Goodner’s Huntington sales office. • All transactions are recorded.
• Transactions are properly presented and disclosed.
• Reliability of financial statements and information.
• Accuracy of accounting records.
• Safe-guarding/Security of assets.
2.) List the key internal control weaknesses that were evident in the Huntington unit’s operations. • Absence of appropriate segregation of duties over important processes. b. Sales force allowed to enter transactions into data systems.
• Absence of appropriate reviews and approvals of transactions, accounting entries, or systems output. a. Sales force allowed to enter transactions into data systems, no signoff on entries. • Inadequate controls to safeguard assets.
a. Dimly lit warehousing spaces, full access to inventories for all employees, etc. • Absence of controls to ensure that all items in a population are recorded. a. Inadequate frequency of inventory physicals.
• Inadequate controls over access to computer systems, data, and files. a. No master-data control, sales force user profiles should not be able to access ledger system or enter transactions due to SOD conflicts.
3.) Develop one or more control policies or procedures to alleviate the control weaknesses you identified in responding to Question 2. Since most of the problems that Goodner had were related to design (that is, there were very few controls actually in place), most of the control policies or procedures that could be implemented to alleviate weaknesses would be around enforcement, such as appropriate signoffs. The major control process that would be most helpful in creating and enforcing all other control processes would be management’s sign-off on all appropriate control procedures.
The reality of the situation, however, is that fraud does happen. I would
implement control policies that centered around problems at the customer level to ensure not only customer satisfaction, but to prevent sales reps from doing what Woody did when he charged back parts of his fraudulent transactions to their accounts. I would also implement controls to address the completion of a physical inventory to assess shrink on a regular basis, including independent counts. Below are a couple examples: 1.) Manager follows up on customer complaints about a sales rep, their account statements, etc. and appropriate sign-off of a superior is completed to substantiate follow-up. 2.) Physical inventory is completed at least as often as corporate mandate calls for, if not more often, and management approves results and findings.
4.) Besides Woody Robinson, what other parties were at least partially responsible for the inventory losses Goodner suffered. Defend your answer. The epilogue does a pretty good job of citing most responsible parties, but there are even a few outside of those cited that bear some of the responsibility because of their direct action or lack of action. In my experience, all internal and external auditors (and good management personnel) have the stance that fraud, misappropriation, and general wrong-doing are always going to exist based on the unpredictable human side of all transactions, but starting with tone at the top, there are ways to mitigate the risk. • The Goodner Brothers, T.J. and Ross, as well as the CFO – The one doesn’t need much of an explanation. “Volume, volume, volume,” may be a good headline for a sales conference, but isn’t much of a tone to set off your entire organization’s culture. • Felix Garcia – Again, not much of an explanation needed here, because quite frankly, Felix Garcia wasn’t doing his job. By not following up on customer complaints and not monitoring the activity of one of his subordinates, Felix could have caught on to the fraud pretty early on. • Al Hunt/Curcio Tires – Al Hunt had a duty to report suspicion of wrong-doing. Even just stopping business with Woody wouldn’t have been enough, though he continued business and definitely made the situation worse by giving Woody an outlet to complete the fraudulent activity. With prices well under industry norms, Woody asking him to inflate prices to not make it obvious, etc., Al was benefitting from Woody’s activity and even though he was not explicitly informed by Woody of what was
going on, his choice to ignore suspicion puts him at fault for aiding the fraud. • Goodner’s independent audit team – Because the company had a credit line through a bank that required financial statements, Goodner employed and independent audit team that according to the text, “Had never paid much attention to the internal controls of the client’s sales offices.” By not paying attention to internal controls, the balance sheet audit that they were doing could have (and was) fairly easily manipulated.
Cite this Goodner brothers
Goodner brothers. (2016, Oct 09). Retrieved from https://graduateway.com/goodner-brothers/