In this case, Dena Brenner, a young woman uses her position as Payroll Manager of the International Agricultural Seed Company, to commit fraud by paying the company’s payroll. What is interesting about this case is that the fraud was performed through of the use of a phantom employee that in this case was a former employee of the company. Another interesting thing is that she did not even know that person at all, she just chose him perhaps, because the company had terminated him long time ago.
According to our textbook, the employee that she used was a ghost employee, “referring to someone on the payroll who does not actually work for the victim company. ” The way to commit fraud was reactivating the personal information of the former employee in the payroll system and then, change the account number from personal bank of the employee by the number of personal account from her bank to direct the payroll paid to the former employee into her account, and once she received the funds in her account, she proceeded to deactivate the employee in the company’s payroll system.
The suspicion came when Klaus Dieter, the treasurer, of IAS; when he noticed a difference of $700,000 for the company’s payroll that is processed every two weeks, and whose fluctuations they were minimal. This situation raised a red flag in Klaus, and quickly this created Klaus to contact Dena to find out why the large difference and Dena who was at that time in the city of Chicago for business purposes, could not give a definite answer, only that it was a bank error.
This was not acceptable to Klaus, which caused him to do his own investigation and research as to why there was a bank error. Another interesting thing was that Dena return immediately instead of having solved the entire situation with a phone call. After finding out the information through other channels it was found out the error was not really a bank error, but that Dena was having payroll deposited into her personal bank account.
Through his research Klaus discovered that the error committed by the bank was not a mistake, but a diversion of funds through the reactivation of the record of a former employee whose deposit of payroll was deposited in the personal bank account of Dena. Once completed the research was identified that the theft of money was for $2,250,000. Dena was confronted by Carrie Lane, where he admitted his guilt. She was accused of illegal appropriation, and she was sentenced to 15 years in prison. Unfortunately, in addition to losing his freedom also lost his family.
CASE ANALYSIS We can begin this analysis with the identification of the elements of the fraud triangle. In this case, the only element that we could apply is the opportunity. Ms. Brenner, with her payroll manager position had access to the payroll system, and performs the corresponding changes to commit fraud. In addition, it was also the person in charge of the reconciliation of payroll account. I think that this fraud does not seem to be caused by financial pressures, but whether by the lack of internal control, which was a key factor to commit fraud by part of Mrs.
Brenner. Also, this case is a clear example of a lack of segregations of duties. In this case, Dena was only person that had access to the information of each employee and payroll system. Also, she had the ability to register the transactions electronically in the general ledger after each payroll period. Another key factor to commit fraud was the reconciliation of payroll account, she was the only in the reconciliation of the payroll account, and this had not been reconciled by more than two years. This facilitated way to commit fraud.
The sad thing about this entire situation is that once International Agricultural Seed completed their investigation, they were able to find not only the 1. 2 million that Dena stole from them, but another $500,000 that consisted of property bought by Dena in Michigan. Dena’s life after this fraud and charges that was brought up by the company caused her to lose her children and her husband divorced her. Her husband, Ron, took the kids and moved back to Ohio after the home they were living in was taken away from them. Dena ended up getting sentenced to 15 years in prison.
CONCLUSION A common internal control is the separation of functions intended to prevent or reduce the risk of errors or irregularities, and in particular the internal fraud in organizations. An employee cannot have the control, of too many tasks that relate to each other. Although, the segregation of duties requires more employees for complete tasks, allow to minimize the likelihood of intentional errors or not, by an employee or group of employees, these errors can be identified when they have levels of review at different stages of the process.
Therefore, procedures, practices and guidelines of internal control in a company to follow to protect their resources, are especially important during recording, preparation and distribution of the payroll. An inadequate or lack of segregation of functions, involving payroll tasks leads to an increased risk of loss by fraud and negligence. Practically, was what happened in this case.