Week 02 Case Study

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Week 02 Case Study
Sarah Larson
Rasmussen College

Author Note
This research is being submitted on April 17, 2013, for Tiffany Krogman’s A276/ACG2680 Section 01 Financial Investigation - Spring 2013 course at Rasmussen College by Sarah Larson.

Week 02 Case Study
The control environment that led to and facilitated the manager’s manipulation of inventory includes: management’s role and example, management communication, appropriate hiring, clear organizational structure, and effective internal audit department. Upper management’s role and example seem fine and management’s communication is adequate. Too little is known about hiring to make a determination in that area. The two things missing are a clear organizational structure and effective internal audit department.

I think the controls mentioned above are missing because there is little monitoring of employees and because Harris thinks she can get away with the fraud due to a lack of proper inventory controls.

Perceived pressure is one of the three key ingredients which people use to perpetrate a fraud. Harris is worried about the competition’s ability to undercut the company’s prices, which made her feel like she needed to overstate inventory. Harris cannot come up with a way to cut any more costs to continue to match the competition’s price strategy. She is also very concerned about a possible reduction in the division managers’ salaries and bonuses.

Harris had a few reasons that she used to justify her fraud. She knew that there were few controls in place over inventory. She would be able to manipulate an area under her control to appear more profitable and thought of this as a short-term solution. She didn’t think the competition would be able to keep the reduced price going for much longer or they would go bankrupt and then she could fix the misstatements in inventory without any consequences.

Resources
Albrecht, W. S., Albrecht, C. O., Albrecht, C. C., & Zimbelman, M. F....
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