Assignment # 1

Case 6.1
The Greater Providence Deposit & Trust Embezzlement

Accounting Information Systems – ACC 564
Professor Jim Ridilla

October 23, 2011

Discuss how Greater Providence Deposit & Trust might improve its control procedures over the disbursement of loan funds to minimize the risk of this type of fraud.
Segregation of duties is a fundamental element of internal control in any company. No single employee should be given too much responsibility over certain business transactions or processes. When one person in an organization has too much control or access over these responsibilities, problems can and often do arise.
In the case of The Greater Providence Deposit & Trust, James Guisti was a
Conduct random audits and enforce vacation policies especially for employees who have access to the financial records and documents.
However, employees should be informed up front and agree to the fact that they may be subjected to the scrutiny that these policies will require. Care should be taken to manage these procedures with compassion and consideration so as not to produce disgruntled employees as a result. “Management should develop clearly stated policies that explicitly describe honest and dishonest behaviors, often in the form of a written code of conduct, and communicate them to employees.” (Romney & Steinbart, 2009) These measures will reduce the risk of embezzlement and improve the company’s internal control over the disbursement of loans.
Discuss whether Greater Providence’s auditors should have been able to detect this fraud.
The internal control requirements section 404 of SOX requires companies to issue a report accompanying the financial statements that states management is responsible for establishing and maintaining an adequate internal control structure and appropriate control procedures. The report must contain management’s assessment of the company’s internal controls and attest to their accuracy, including notations of significant defects or material noncompliance found during their internal control