digit tech company a communications equipment manufacturer recently fell victim to a 554082

EX 8-15 Internal control of cash payments

Digit Tech Company, a communications equipment manufacturer, recently fell victim to a fraud scheme developed by one of its employees. To understand the scheme, it is necessary to review Digit Tech’s procedures for the purchase of services. The purchasing agent is responsible for ordering services (such as repairs to a photocopy machine or office cleaning) after receiving a service requisition from an authorized manager. However, since no tangible goods are delivered, a receiving report is not prepared. When the Accounting Department receives an invoice billing Digit Tech for a service call, the accounts payable clerk calls the manager who requested the service in order to verify that it was performed. The fraud scheme involves Loretta Trent, the manager of plant and facilities. Loretta arranged for her uncle’s company, Laser Systems, to be placed on Digit Tech’s approved vendor list. Loretta did not disclose the family relationship. On several occasions, Loretta would submit a requisition for services to be provided by Laser Systems. However, the service requested was really not needed, and it was never performed. Laser Systems would bill Digit Tech for the service and then split the cash payment with Loretta.

Explain what changes should be made to Digit Tech’s procedures for ordering and paying for services in order to prevent such occurrences in the future.