A former chairman, chief financial officer, and controller of an apparel company pleaded guilty to financial statement fraud. These managers used false journal entries to record fictitious sales, hid inventory in public warehouses so that it could be recorded as "sold," and required sales orders to be backdated so that the sale could be moved back to an earlier period. The combined effect of these actions caused millions in phony quarterly sales.
a. Why might control procedures listed in this chapter be insufficient in stopping this type of fraud?
b. How could this type of fraud be stopped?