The Great Providence Embezzlement

Topics: Internal control, Auditing, Fraud Pages: 1 (422 words) Published: July 12, 2011
Case 6-1: The Greater Providence Deposit & Trust Embezzlement 1. The case of Guisti’s embezzlement show that there is a lack of proper segregation of duties and authorization. Since the Guisti was the supervisor of the Lucy, a customer service representative, he was able to get cosign for the checks from her because she assume that there will be no false information. Guisti was authorized to make consumer loans up to a certain dollar limit without loan committee approvals which was the most weakness part in the Greater Providence’s internal control system. The procedures of making loans should be more complicated and need to be done by several people, not just one. If amount of loan is not significant so that it does not need approvals from headquarter, it should be reviewed by the controller at local branch who is directed from headquarter. In that way, The risk of embezzlement will be reduced. 2. The idea of rotating the assignments of loan review clerks are good. But, there was a problem because rotation occurs frequently. Rotation should be occurred sometimes, it could be twice a year that will be enough to prevent the mistakes and fraud. There should be some kinds of reinforcements for reviewing procedures. I would recommend to have general call and mail to customers and see if they are verifiable and know about their loans well. If there is any misunderstanding, then they can report it to the internal auditor and they will investigate it. These will reduce the risk of the embezzlement and improve the company’s internal control over the disbursement of loans 3. Auditors should have been able to detect the problem because it was not that hard to detect if they just contact the person on the loan. They just didn’t consider these loans questionable. Even if the dollar amount is not significant to compared to big ones, the auditors should have card about it because the fraudsters will not embezzle obviously that will be found out by auditors. 4. There were...
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