During the Christmas holiday season, diamonds are a hot buy throughout the USA. Sales have been growing dramatically at International Jewelers, a regional diamond retailer throughout Washington and Oregon. International Jewelers positions itself as a high quality diamond retailer that is located just across the street from the mall. This means it has a convenient location without the added markup. Over the past three years, the Bellevue store has experienced a dramatic sales increase, almost 38 percent (see exhibit A). John Pastella, President and owner of International Jewelers, has praised the efforts of Wade Sullivan, manager of the Bellevue store, for his tenacity in pushing sales growth. John said, “He hasn’t missed a day of work in three years.” Sales representatives are paid by commission and are pushed to meet daily sales goals that are progressively higher each day between Thanksgiving and Christmas. Cash bonuses are distributed to individuals each day as goals are achieved. Wade, the store manger, disburses the cash on a daily basis and performs all duties of store management including the books. Wade reports to John on a quarterly basis.

Over the past three years a few sales representatives have seen Wade take cash from the register. When approached he said he was only borrowing the money to refurbish his 1954 Chevy and that he would repay the money. Sales representatives also noted that during the past year Wade had purchased a Bentley, which he had driven to work on occasion. He also bought a new home on Lake Washington. His explanation about these new luxuries was that he inherited a large sum of money from his grandfather who passed away a few years ago. Management first questioned the low profitability of the Bellevue store when the financial statements of the past three years were reviewed. John couldn’t understand why net income was so flat despite the fact that sales had grown almost 38 percent in the past three years. After a few days of frustration and no solution, John hired a local certified fraud examiner who solved the problem. Wade had embezzled up to $277,500 from the company by falsely recording receivables.

Requirements

What should the sales representatives have done after discovering Wade’s habit of taking cash from the register?

What controls could John have put in place to prevent the fraud from occurring?

What clues hinted that fraud was taking place?

Answer rating: 100% (QA)

Ans Sales representative should have informed about the embezzlement of funds by ... View the full answer