Tenkey Book Company operates a chain of retail bookstores throughout the United States. Sandra Hawthorn, Tenkey's controller, runs a fairly tight internal control system with rigorous requirements for the segregation of duties throughout the company. Even the best systems can have problems, and recently someone called in a tip to the company's anonymous hotline saying that Tenkey was losing a significant amount of inventory to employee theft and that the problem was pervasive through many of the company stores. The caller left no details as to who was committing the thefts or how they were being committed.

Sandra was alarmed because inventories constituted a large percentage of Tenkey's assets, and if losses could occur in even one store, they could probably occur in others too. She called a staff meeting that included the IT director and the general accounting manager. "We need a plan to investigate this," she told them. "Any suggestions?"

Tom Clockspeed, the IT director, jumped right in. "Let's doa complete inventory of all of our stores," he said.

Anna Aburida, the general accounting manager, began shaking her head. "We're not due to take inventory for another six months. It would cost us a whole lot of overtime if we do it now."

Sandra glared at Anna and said, "You're just going to have to do better than that."

"Okay," said Anna. "We need a plan. Let's start by considering likely suspects. Then we can evaluate the internal controls surrounding everyone who might be in a position to steal. There has to be a weak point somewhere."

"This is a little crazy," said Tom. "You're making all of these plans when we're not even sure if the phone caller was telling the truth. Let's at least doan inventory of one store before we doanything else."

Anna frowned. "That's great Tom. So what happens if we inventory one store and don't find any inventory shortage? Then what do we do?"

Tom slid back in his seat and laughed. "Right," he said. "But what happens next if you don't find any control problems? Then we've just wasted time. And even if you do find control problems, there's no guarantee that fixing them will fix them. And remember, we don't even know for sure if we do have a problem."

Sandra pounded her fist on the table. "This is going nowhere. I'm going to bring in a forensic accountant to find out what to do."

1. If you are brought in as Sandra's outside forensic accountant, what advice would you give her?

My advice to Sandra would be to evaluate and revamp the internal controls in place around inventory & security as well as to begin conducting background and credit checks on store level employees going forward. Inventory will need to be counted in all locations. Once the inventory is counted if losses are found more extreme measures can be implemented at high-risk locations.

Cameras should be installed and cover areas where internal fraud or theft is likely to happen such as at the register, the front & back entrances, & in stock rooms. Physical controls should work in hand with administrative controls and further security such as NFC tagging can be implemented in select or all locations.

1. Which employees could be stealing inventory? Describe one or two possible schemes applicable to this case.

Any customer or employee in the supply chain of Tenkey Book Company could be stealing inventory.

• An employee in the warehouse could not pack a book for an order and steal it.
• A store employee could damage out a book and take it home instead of properly disposing of it.
• A store employee could damage out a book and sell it for cash.
• An ordering manager could simply not record a book arrival in a shipment and claim a missing item with the supplier.

 . John Markov runs a family-owned department store in St. Louis. The store consists of nine different departments, each with its own department manager. Store hours are Monday through Saturday from 10:00 A.M. to 7:00 P.M., and from noon until 5:00 P.M. on Sunday.

Each department has its own cash register, and two salespersons are assigned to each register. To prevent any confusion, each salesperson must enter his or her own secret code with each transaction. At the end of each day, the sales manager in each department tallies the department's register, collects the money (cash and checks) from the register, and prepares a transmittal slip for the general manager to review and sign. The general manager then double-checks the Cash count before signing the transmittal slips.

After collecting all cash receipts from all departments, the general manager prepares a daily cash sales report and sends it to the store's finance manager. The finance manager again counts the money and signs three copies of the daily cash sales report. She keeps one copy for herself, a second copy goes to the store accountant, and the last copy goes to the store manager. The finance manager then puts all of the cash into the company safe, where it stays until the next morning when it is picked up by an armored car service.

The store accountant reconciles copies of cash sales reports with bank deposit slips and with credits on the monthly bank statement.

John has a close relationship with the bank, so he is always called first when there is any kind of issue or problem. He just received a call from one of the bank's customer service representatives who suggested that he look into some customer checks that had recently bounced. The bank representative said that some of the payer names on the checks had come up in bad checks written to a number of other local businesses.

"You have an insider working against you," said the bank employee. "This is happening all over town, and I heard a police investigator say that there's always an insider involved."

1. What possible check fraud schemes might the company be a victim of?

There are many possible check fraud schemes that John Markov's family-owned department store in St. Louis could be a victim of.

• Check theft/ Signature Forgery: Forging a signature on a stolen check to make purchases.
• Merchandise resale: A purchase is made with a bounced check for a highly resalable items in order to maximize profit of the purchaser/ seller.
• Paperhanging: Using checks from closed accounts to make purchases then quickly returning the item for cash as cash is standard for check refunds.
• Insider help: A manager or employee is in cahoots with 1 or more people to knowingly accept bad checks for their own gain.

1. Given the store's procedures for processing cash receipts, which persons in the store are in a position to participate in a check fraud scheme?