- The victim in the case is Robert Smylie who was the owner of the law firm from which the money to set up the bakery was embezzled. The fraudsters in the case are Carmen Salindong and a sister-in-law who worked for Smylie before opening up the bakery. According to court records, the office manager and her sister had embezzled more than $5 million from the firm over the years they had worked in the organization.
- Although the embezzlement has gone on for many years, Smylie did not realize what was happening. He was happy for his former employees on their successful bakery business, although his firm was failing. He realized the fraud after receiving a call from a bank fraud investigator regarding payments of employees’ credit cards. The particular credit card in question belonged to Esterlina Santos, Salindong’s sister in law. The call revealed to Smylie the fraud that had gone on for almost a decade without his knowledge.
- A forensic accountant or fraud investigator was brought into the case to investigate the embezzlement allegations. It is worth noting that the professional engages in investigations where fraud allegations are made or suspected (Kranacher and Riley 17). The expert collects evidence such as through auditing and accounting books or other financial records. Furthermore, he or she gives expert witness in court if a case is filed to that effect. In the case of Smylie’s law firm, the professional was important to investigate the fraud case and present evidence in court. The forensic accountant or fraud investigator would also offer legal advice to Smylie.
- The alleged fraudsters had embezzled funds from the law firm since 2008. In this case, Carmen Salindong and a sister-in-law had embezzled more than $5 million. They used the money on expensive vacations in different countries, luxury cars, and eventually opening up the bakery. The particular type of fraud was financial statement fraud. Notably, the fraud involves overstatement of financial statements or fraudulent recording to allow misappropriation of funds (Silverstone 28). The two employees dealt directly with financial records, which enabled them to steal the money for years without being detected.
- Companies require internal controls to identify, prevent, and address fraud. They are internal policies and procedures that support responsibility and accountability in a company (Silverstone 36). It is evident that in Smylie’s law firm important controls were lacking, including internal audit and surprise book checks that would detect the fraud, testing for clerical accuracy and regular employee screening to prevent fraud, and adequate supervision. The internal controls would help Smylie to prevent the fraud or identify it in time to take corrective measures. The failure allowed the embezzlement to continue for years without being detected.
- Mr. Smylie should implement both preventive and detective internal controls to prevent the occurrence of such a situation in the future. Preventative internal controls inhibit fraud from happening (Silverstone 38). Examples of such controls are passwords on computers and testing for clerical accuracy. Although detective controls identify errors immediately they have occurred, they can prevent massive damage (Silverstone 38). Such approaches may include taking inventory, surprise cash counts, internal audits, review, and approval of accounting work.
- The Fraud triangle is a model applied in explaining the reason behind the decision by employees to commit fraud in the workplace. It involves three stages, including pressure, opportunity, and rationalization (Kassem and Higson191). The initial stage is pressure, which involves the reason behind the need to commit fraud. For example, Esterlina Santos accepted that she had embezzled the funds to help their family members to overcome financial difficulties. The opportunity had presented itself when her relative became the office manager, and she was responsible for bookkeeping activities for the law firm. They rationalized the fraud by implementing their plan to steal the money and use it for pleasure and to open the business.
- Mr. Smylie should not allow Santos to keep the job because she had already stolen from the firm. Mr. Smylie was running the risk of closing the business because of financial difficulties after losing millions of dollars to the fraud. The advantage of retaining the employees is that Mr. Smylie would not suffer the additional cost of hiring and training another book-keeper. However, there is a financial risk since the employee had mastered the art of embezzling funds from the company. In addition, the firm would suffer a negative image by retaining an alleged fraudster.
- Some red flags that the firm’s (external) accountants would have noted include the decline in the financial revenue of the company over the years. The orgazation was losing millions of dollars, which was a considerable amount to go unnoticed. Another red flag was the lavish lifestyle of the two alleged fraudsters. They were buying expensive luxury cars and going on lavish holidays. The accountants should have audited their lifestyle. In essence, they might suffer some legal liability, especially if proven that they were aware of the fraud.
Kassem, Rasha, and Andrew Higson. “The New Fraud Triangle Model.” Journal of Emerging Trends in Economics and Management Sciences vol. 3, no.3, 2012, pp. 191-195.
Kranacher, Mary-Jo, and Richard Riley. Forensic Accounting and Fraud Examination. Wiley, 2019.
Silverstone, Howard, et al. Forensic Accounting and Fraud Investigation for Non-Experts. Vol. 2. Hoboken, NJ: Wiley, 2004.