ACCT 630 9040 Fraud Examination (2175)
You are the owner of a privately-owned, small golf course in the city of Butte, Montana. The land for the golf course was given to you by your father over 25 years ago, when the farm your father had operated closed and went out of business. The golf course has done well since it was first built, and includes today a small shop which sells golf equipment, golf accessories, and golf clothing from the major golf manufacturers, as well as a very small restaurant which serves simple breakfast and lunches for golfers wishing to eat before or after playing golf. The revenues and the profits of the golf course have also grown significantly, especially in recent years with the growth of the golf as a sport in Montana. Your books are kept by a local accounting firm, which also prepares the annual tax returns for the business.
The accountant from the accounting firm that helps to prepare the books and the monthly financial statements estimates that the business loses up to 10 percent of its profit each year to internal fraud. His estimates are based upon the profits and the operating margins made by other golf courses which are clients of his accounting firm selling similar types of merchandise and meals at their restaurants in the same area. Fortunately, your business can afford this loss, but perhaps the day will come when the business cannot afford such continuing losses due to internal fraud. All payroll-related functions are outsourced to ADP; the owner approves all payroll weekly online before payroll is paid.
The golf course has only 4 employees. One runs the golf shop; one runs the restaurant area; and the other two perform the daily maintenance required of the golf course during golf season. You have tried to put adequate internal controls in place, such as vendor order processing for supplies required for the golf shop, for the restaurant, and for the golf course maintenance and other internal measures, but you travel often, and you allow the employees in your absence to do what is required to keep the operation running as smoothly as possible, including signing checks to pay vendors so the business is not impacted when you travel.
You have caught employees in the past in fraudulent activities in the past, but because Butte is such a small town, you have never pursued prosecution of them in court as you are afraid of the negative publicity it would cause not only your business but also their former employees in the community.
Questions/Requirements
1. Given the scenario above, as the owner of this golf course, which aspects of the golf course operations can you change immediately to reduce the amount of fraud that is currently occurring? Be specific. For example, address the following areas:
-orders to suppliers
-payments to suppliers
-the monthly operating bank statement and the monthly bank reconciliation for the golf course (which right now is performed by the accountant, who is not involved in the fraud whatsoever, of course…..)
-for the golf shop, maintaining perpetual inventory records
-the use of various types of basic technology within the golf course operations to help control for the risk of fraud-be specific!
-check signing authority
-any other areas you can think of, based upon the information provided in this case study (you need to think of and add a few more to this list).
2. Describe some factors in detail related to creating a culture of honesty within the golf course operation, starting at the beginning. What are some basic factors or steps you should take with regards to ensuring there is a culture of honesty and integrity within the golf course operation? You should identify 4-5 steps you would recommend the owner to implement immediately to stop the losses the golf course has been suffering due to internal fraud and explained in detail why he should take them. Do not repeat any of the items you described in your answer to the first Requirement above.