ACC 205 WEEK 4 DQ 1 Fraud Case Analysis: Key Control Weaknesses and Mitigation Strategies for Small Businesses
Analysis of fraud cases and mitigation strategies in small businesses.
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Fraud Case Analysis: Key Control Weaknesses and
Mitigation Strategies for Small Businesses
ACC 205 WEEK 4 DQ 1
Fraud Case 7-1
Levon Helm was a kind of one-man mortgage broker. He would drive around Tennessee
looking for homes that had second mortgages, and if the criteria were favorable, he would
offer to buy the second mortgage for “cash on the barrelhead.” Helm bought low and sold
high, making sizable profits. Being a small operation, he employed one person, Cindy
Patterson, who did all his bookkeeping. Patterson was an old family friend, and he trusted
her so implicitly that he never checked up on the ledgers or the bank reconciliations. At
some point, Patterson started “borrowing” from the business and concealing her
transactions by booking phony expenses. She intended to pay it back someday, but she got
used to the extra cash and couldn’t stop. By the time the scam was discovered, she had
drained the company of funds that it owed to many of its investors. The company went
bankrupt, Patterson did some jail time, and Helm lost everything.
Requirements
1. What was the key control weakness in this case?
2. Many small businesses cannot afford to hire enough people for adequate
separation of duties. What can they do to compensate for this?
Fraud Case 7-1
Solution:
1. There was not separation of duties between cash
disbursements and recording transactions in the
Mitigation Strategies for Small Businesses
ACC 205 WEEK 4 DQ 1
Fraud Case 7-1
Levon Helm was a kind of one-man mortgage broker. He would drive around Tennessee
looking for homes that had second mortgages, and if the criteria were favorable, he would
offer to buy the second mortgage for “cash on the barrelhead.” Helm bought low and sold
high, making sizable profits. Being a small operation, he employed one person, Cindy
Patterson, who did all his bookkeeping. Patterson was an old family friend, and he trusted
her so implicitly that he never checked up on the ledgers or the bank reconciliations. At
some point, Patterson started “borrowing” from the business and concealing her
transactions by booking phony expenses. She intended to pay it back someday, but she got
used to the extra cash and couldn’t stop. By the time the scam was discovered, she had
drained the company of funds that it owed to many of its investors. The company went
bankrupt, Patterson did some jail time, and Helm lost everything.
Requirements
1. What was the key control weakness in this case?
2. Many small businesses cannot afford to hire enough people for adequate
separation of duties. What can they do to compensate for this?
Fraud Case 7-1
Solution:
1. There was not separation of duties between cash
disbursements and recording transactions in the
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Document Details
University
National University
Subject
Accounting