Digital Com Company, a communications equipment manufacturer, recently fell victim to a fraud scheme developed by one

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Digital Com Company, a communications equipment manufacturer, recently fell victim to a fraud scheme developed by one of its employees. To understand the scheme, it is necessary to review Digital Com’s procedures for the purchase of services. The purchasing agent is responsible for ordering services (such as repairs to a photocopy machine or office cleaning) after receiving a service requisition from an authorized manager. However, since no tangible goods are delivered, a receiving report is not prepared. When the Accounting Department receives an invoice billing Digital Com for a service call, the accounts payable clerk calls the manager who requested the service in order to verify that it was performed. The fraud scheme involves Matt DuBois, the manager of plant and facilities. Matt arranged for his uncle’s company, Urban Industrial Supply and Service, to be placed on Digital Com’s approved vendor list. Matt did not disclose the family relationship. On several occasions, Matt would submit a requisition for services to be provided by Urban Industrial Supply and Service. However, the service requested was really not needed, and it was never performed. Urban would bill Digital Com for the service and then split the cash payment with Matt. Explain what changes should be made to Digital Com’s procedures for ordering and paying for services in order to prevent such occurrences in the future.


Accounts Payable
Accounts payable (AP) are bills to be paid as part of the normal course of business.This is a standard accounting term, one of the most common liabilities, which normally appears in the balance sheet listing of liabilities. Businesses receive...
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Accounting

ISBN: 978-0324662962

23rd Edition

Authors: Jonathan E. Duchac, James M. Reeve, Carl S. Warren

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