Ethics, Fraud and Internal Control at Bern Fly Company
B1 – Ethics, fraud and internal control at Bern Fly Company
The main purpose that a good internal control must fulfil is to protect the firm’s assets from fraud and theft. As we can see from the description of Bern Fly Company’s case, the internal control within the company leaves much to be desired.
As it can be read in the case the salespersons get commission promptly after each order taken by their customers without any control to check if that order is real or only a fictitious one. This scheme gives the opportunity for the salespersons to get very easy money by simply making fake orders and then cancelling them once they got the commission for that order. They can even act in collusion with the cash disbursement clerk at the disbursement department and this way, without the control of a person of a higher level on the echelon within the company, this fraud can never be detected. The solution in this situation is simply the segregation of duties, that is orders should not go directly to the cash disbursements department but should go through an internal control process first. The cash disbursements department must be only the final stage of the chain when everything was found to be correct and the cash disbursement is permitted by the control department.
What’s more, the afterlife of the order should not be left out of consideration either, as it marks out from the description of the task that the product returns are extremely high which in fact offset the high sales figures of the salespersons and decrease the company’s profit. In this case we should check if this high rate of returned products is caused by the not adequate quality of the products, in which case the salespersons deserve the commission of the sales activity, or it is caused by the fraudulent acts of the salespersons, in which case they don’t deserve it and actions have to be taken to stop this practice.
We can also see some imperfections in the method of the expense reimbursements. The
The main purpose that a good internal control must fulfil is to protect the firm’s assets from fraud and theft. As we can see from the description of Bern Fly Company’s case, the internal control within the company leaves much to be desired.
As it can be read in the case the salespersons get commission promptly after each order taken by their customers without any control to check if that order is real or only a fictitious one. This scheme gives the opportunity for the salespersons to get very easy money by simply making fake orders and then cancelling them once they got the commission for that order. They can even act in collusion with the cash disbursement clerk at the disbursement department and this way, without the control of a person of a higher level on the echelon within the company, this fraud can never be detected. The solution in this situation is simply the segregation of duties, that is orders should not go directly to the cash disbursements department but should go through an internal control process first. The cash disbursements department must be only the final stage of the chain when everything was found to be correct and the cash disbursement is permitted by the control department.
What’s more, the afterlife of the order should not be left out of consideration either, as it marks out from the description of the task that the product returns are extremely high which in fact offset the high sales figures of the salespersons and decrease the company’s profit. In this case we should check if this high rate of returned products is caused by the not adequate quality of the products, in which case the salespersons deserve the commission of the sales activity, or it is caused by the fraudulent acts of the salespersons, in which case they don’t deserve it and actions have to be taken to stop this practice.
We can also see some imperfections in the method of the expense reimbursements. The