Embezzlement Issues D J Fletcher Trusted Employee Bluestem Products Found Personal Financi Q23504407
Embezzlement Issues
D. J. Fletcher, a trusted employee ofBluestem Products, found himself in personal financial difficultiesand decided to “borrow” $3,000 from the company and to conceal histheft.
As a first step, Fletcher removed$3,000 in currency from the cash register. This amount representedthe bulk of the cash received in over-the-counter sales during thethree business days since the last bank deposit. Fletcher thenremoved a $3,000 check from the day’s incoming mail; this check hadbeen mailed in by a customer, Michael Adams, in full payment of hisaccount. Fletcher made no journal entry to record the $3,000collection from Adams, but deposited the check in BluestemProducts’s bank account in place of the $3,000 over-the-countercash receipts he had stolen.
In order to keep Adams from protestingwhen his month-end statement reached him, Fletcher made a journalentry debiting Sales Returns and Allowances and crediting AccountsReceivable— Michael Adams. Fletcher posted this entry to the twogeneral ledger accounts affected and to Adams’s account in thesubsidiary ledger for accounts receivable.
a.Did these actionsby Fletcher cause the general ledger to be out of balance or thesubsidiary ledger to disagree with the control account?Explain.
b.Assume thatBluestem Products prepares financial statements at the end of themonth without discovering the theft. Would any items in the balancesheet or the income statement be in error? Explain.
c.Several weaknessesin internal control apparently exist in Bluestem Products. Indicatethree specific changes needed to strengthen internal control overcash receipts.