One of your tax clients, owner of a hardware store, contacts you to introduce their...
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Accounting
One of your tax clients, owner of a hardware store, contacts you to introduce their new payroll manager, John Doe. As the conversation proceeds, you realize you know John Doe. Several years back, John was president of the local Parent-Teacher Association and used his position to embezzle $20,000. He drained the PTA account and the organization had to work extra hard to replenish the funds. How did he do it? John was the sole person to sign checks. He created phony expenses and paid them himself, then wrote checks to himself to reimburse his expenditures. Once discovered, the PTA never pursued legal action. John was asked to make small payments to the PTA as restitution, but you have no idea if he followed through. You anticipate John, in his new role, will handle all the stores financial affairs, including writing checks and taking deposits to the bank. You assume the owner has no idea about Johns past. What should you do? If you decide to talk to your client, what suggestions will you make to minimize your clients risk? (Hint: recall "internal control")
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