CN: 3050

INTERNAL AUDITING
CRITIQUE PAPER

SUBMITTED BY
KENNETH S. DAGOHOY
Title : A case study of employee frauds.
Author : Seidman, Jack S
Source : http://archives.cpajournal.com/old/08135650.htm

Summary
The study is about employee theft frequently takes place for a long period of time without being
identified by an investigation. Around two hundred million dollars a year was lost to business as
a result of employee theft. Writer Jack S. Seidman wrote an article in the October 1939 Wall
Street Journal on employee theft. The article was written in the B.C period before computers
were created. Businesses may also prevent bribery by properly hiring and educating
employees. The October 1939 issue of the Wall Street Transcript, with this article as a front
page item. Go back to your favorite news story tab. "Fraud is merely another badge of human
failing, though, to be sure, an unpleasant one," says Jack Seidman, author of the 1939 post.
Frauds stopped or discovered by auditing are much more preponderant than those that elude,
at least for some time, auditing or auditing, says Seidman. Recommended internal control
measures include keeping a list of all checks and securities obtained through mail by those in
the accounting department; using managed duplicate deposit slips to document bank
transactions; and, in particular, authorizing all interbank payment products. The suggested
independent audit techniques include surprise audits, annual analysis of bank accounts, and
revolving auditors. Businesses may also prevent bribery by properly hiring and educating
employees.
The topic of auditor rotation has been catapulted to the fore as a result of recent events. A new
inspector, like a new broom, is going to make a clean sweep and be able to dig up items that
were not caught by the predecessor. Many times, though, fraud is brought to light only when the
auditor is intimately familiar with the business of the firm. The sine qua non of audit
effectiveness is not about methods, but about the auditor's individual qualities. "It ain't what we
do, but the way that we do it."
And as internal control and external audits have risen to the skies, could executive bribery be an
endangered species? Not with a whit! There will be no removal of deceit until the human being
is fully molded in the image of God, and the virtue is victorious. In other words, when the
accounting method is fine, fraud-doers are likely to be a perfect plus. However, if the separation
band is just the small plus," we would have made laudable progress. If the case study that has
established our basis here is to be viewed as symptomatic, the starting point for fraud-doer
today is a few pluses.
Auditing has showed enough plasticity and development to support the expectation that fraud-
doer processing will get leaner and leaner on a regular basis. Unflinching introspection, as
made possible by a case study, would be one of the laboratory strategies for performing audits
of the promised land.
The critique

Point of view
in making my critique, used on what I see on the on news and other resources and knowledge
in employee frauds as internal auditor student. Also I read several studies related to case.

Conclusion
A case study on employee fraud was done in the hope of developing better auditing techniques.
More than five hundred cases were culled out and test-tubed. Employers were banished from
consideration skullduggery by accountants, credit grantors, or governmental bodies. What is
here reported or treated is based solely on that study. There is no drawing on the imagination.
The hard knocks and provocations of actual experience are the auspices under which we
proceed.
Fraud expert: Analysis of the fraud methodology-doer could do more harm to the opportunity it
would provide to prospective wrongdoers than it would do better to expand the art of law
enforcement. One objector was also uncomfortable about warning accountants about deception
in the light of what the Interstate Hosiery Business case has demonstrated might happen.
Circumspection is, of course, beneficial. In the other hand, it would be an ostrich-like procedure
to escape reality. A piercing glare on the road of sinners has always been a sure way to throw
the path into disarray. It is possible to escape the revealing, personal descriptions of the
different situations, and then, by means of a short technical summary or categories, the
specialist points out that the picture is immediately enclosed in our heads. The problem now
before the house is better summarized in the poignant colloquialism, "so what?"
No employer has ever been scammed by an employee he or she did not trust. All employee
theft is dependent on three conditions, one or all of which is present in each case. In most
cases, a financial burden worker thinks, "I'll put it back as soon as I get financially stable again"
Any boss that claims, "We don't have people in our company who would steal" displays the
highest level of greed. The general consensus was between 65% and 75%. The most
pessimistic of them was to suggest that the rest of us had just not found it. There are rarely
occasions where an employee takes something that is automatically noticed, even though it
often occurs. Most fraud happens where it is not readily missed, or at least not instantly. Their
need is to show that they will never cheat, or that another quarter to 15% will never steal, that
their need to feel truthful and good for themselves trumps all temptation. The remaining 70 per
cent to 80 per cent steal because they are under threat from outside financial pressures, or
because they are getting revenge, or even simply because they can.
This are the actual stories. In reality, both of them happened to the owner of a business with
whom we worked. These are not unusual events.

This study is help to understand the situation and be transparent to the other employee to the
scent of frauds so we must to responsive to the presence of fraud. We cannot continue to
ignore, as being insignificant, the fact that documents might be in a disorderly state or not up to
date or in charge of one person. The over-anxiety of the accountant to help in the audit, or the
opposite intense frustration on the part of the accountant because of the intrusion incurred by
the audit, may all be absolutely innocent-but then again it may not be.
Reference

 A case study of employee frauds. by Seidman, Jack S.