FNSACC516 Assessment Tasks On Implement And Maintain Internal Control Procedures

Task 7 Internal Control Weaknesses and Improvements

Adam Slimfoot has been a highly respected and extremely competent employee of RedChip Enterprises for many years. He was described as a dedicated workaholic, often at his desk 7 days a week, almost every week of the year. He has been responsible for all accounting and sales transactions. He has no family and lives for his work. His only hobbies are watching horse racing and gambling.

Recently he was in a serious car accident caused by fatigue and too many drinks at the staff annual race day and dinner. As a result he has spent many weeks in hospital.

A temporary accountant was hired to take over the job in the absence of Mr Slimfoot. He reported many disturbing procedural deviations from the company’s accounting and operations manual to the Managing Director (M.D), Peter Frown.

Mr Frown had been residing in Majorca, Spain with his good friends Pixie and Chris Skase and had left all the day to day running of the company to his trusted friend Mr Slimtfoot.

The other accounting staff employed by RedChip Enterprises had been replaced with new employees in Mr Frown’s absence. It was discovered that they were not qualified and did not know of the existence of the accounting and operations manual or have any training in company policies and procedures.

These employees performed their duties in the way Mr Slimfoot instructed them, without ever questioning anything he said because of their lack of formal qualifications and training.

Both Peter Frown and the investigating accountant who was subsequently engaged to investigate the matter were shocked to discover that Adam Slimfoot had embezzled more than $900,000 over a two year period by not recording sales in the sales journal and subsequently diverting the cash receipts.

Advise at least 5 major factors you believe may have contributed to the misappropriation of funds.