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Case study control and accounting The greater providence deposit & trust emblezzment

Case study control and accounting

The greater providence deposit & trust emblezzment

In a nutshell, the greater providence deposit and trust is a financial institution that specialized in the depository and having the liquid money which is most tempting and can easily slip away without quick noticing, a weakness that Guisti capitalized and started scheming on how to siphon out this money. One thing which must be noted in advance is that these monies do not belong to the trust nor does it belong to the one who borrows so what we say in either way there is interest that must be paid. Failure to do so will be liquidating the bank on experience that the providence report and trust experienced may find it impossible to repay it at the expiry of the period.  So the issue of giving out this money without a collateral security was dangerous.  Securities should be emphasized so that there is a sure promise to recover the money, incase of failure to honour the loan in full.

As a matter of fact greater providence and trust should separate duties.  The fact that Guisti was authorized to prepare consumer loans up to a certain dollar limit without the approval

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of the committee was completely wrong. Greater Providence should put in place lines of authorization between departments which should prove the transaction and that their limits of authorization should be specialized.

Another measure that Greater Providence should consider; is the recruitment of competent and professional people to work for the institution. A very poor indicator from the customer representative, who had an assumption that everything, was okay. This is a very wrong assumption. A professional should prove documents beyond reasonable doubt be fine.

The other measure that greater providence should look into seriously is the installation of high powered computers to assist in major transactions so as to minimize intentional manipulation or accidental error. In what ways does this case indicate lack of proper segregation of duties?

1.                  Consist originated the loans and whenever one was due he would take a new one or remit the old to pay the principal and interior due. Some of which had been remitted more than five times.

2.                  Relatives and friends and even non existent individuals with wrong social services numbers when given all the authority list to consist without involvement of the financial committee.

3.                  The authorization and approval of loans was entirely left to Consist without involvement of the financial committee.

Loans were given out without proper documentation, no collateral securities were submitted and all the transactions were undertaken by consent.

To improve the loan review procedures, Greater Providence management needs to review the whole process right from customer to the top that is management itself. In fact I can term it as a total overhaul of the whole systems not only at the headquarters, but since the final discussions are made at the banks headquarters than the following measures are to be taken appropriately.

i)                 All loan applicants should apply with proper documents fully recommended by the state on attorney and proved beyond any reasonable doubt to tune nature of the applicant. This will minimize the misrepresentation of individuals as it was in the case of Venesse.

ii)               To every loan processed, there must be an accompanying audit rating his story. This will give the banks’ headquarters prove that the customer has a clean history and is able to service the loan.

iii)             To every loan applicant the bank headquarters must ascertain that the collateral security is attached. This could be a sure prove that in case of failure to repay the bank would sell an asset to recover its own money.

iv)             It is my opinion that this agreement be made official under the rules of the state. In this case the applicants’ forms must be verified and signed by the state attorney so that it can be binding and prosecuting under the state laws incase of misconduct.

v)               The bank must at all not set the audit limit beyond which a further investigation to these limits should be specified. No one person should be responsible of a complete transaction.

vi)             The bank should take the transaction as a priority. Money belongs to Hasile and liquid. It should be highly protected. With an invention of modern computers, making one of them would be more secure and appropriate other than clerks who would be tempted to steal.

To my opinion, the rational assignments of the loan review clerks were a good idea. In fact I can term it strength to the management. The major reason to this is to avoid intentional manipulation of records with customers in order to fraud the branch. Another good reason for this is to countercheck one another such that if a crime was committed by one clerk sometime, it will be easily and quickly detected by another as he/she takes over at quick intervals. And finally this does not allow them to make strong relationships that will generate ideas on how to defraud the bank.

According to SAS 300 and ISA 400, the Archton are required to

i)                    Obtain an understanding of the accounting and interval control systems, sufficient to plan the audit and develop an effective audit approach.

ii)                  Obtain and document on understanding of the accounting systems and control environment sufficient to determine their audit approach

iii)                To rely on their assessment of control risk to reduce the extent of their substantive procedures. They should make preliminary assessment of control risk for material, financial statements assertions and should perform and tests of control to support that assessment.

On the other hand arching in concerned with the verification of accounting data and with determining the accuracy and reliability of accounting statements and reports. Verification in this sense means working for sufficient evidence to satisfy oneself as auditor that the accounts show a time and a fair view (SAS 400, ISA 500 audit evidence).

Now based on the above, I don’t understand what was difficult to detect and normalize for the period five years and above. It is my opinion that this was a total laxity; the auditors took their duty lightly and ignored the embezzlement as a small matter and concentrating on other issues

Embezzlement is declined as an act of appropriating dishonestly and fraudulently of a trust fund to ones own us (Webster 1997) while deficient is declined as lacking some element or characteristics, insufficient or inadequate (the random house dictionary) combining the two meanings above Greater Providence and trust control environment could have contributed to this scenario of fraud to a greater extent.

As far as Millchemp, (2002) is concerned; control attitude, awareness and actions of directors and management regarding internal controls and their importance should be emphasized. The control environment encompasses the management by sight and corporate culture and valued by all employees (pg. 99).

Surely as a banking institution how could the directors allow Consists to make consumer loans up to a certain dollar limit without a loan committee approval, which was AN illegal industry practice; how would he extends loans to customers without the credit history or the credit limit and how could these loans be serviced without a collateral security, how could the customer service representative consign checks without doing proper verification on who are the rightful owners and the modalities to Guisti to prepare, to sign, and even cash out these checks without proper procedure or question for the whole period of more than five years. This shows a total disgrace and disrespectful of duty and lack of control measures within the entity and because of the above discrepancies Guisti found it easy to embezzle the funds for a long period for his own benefit.


1.                  Millichamp A. H (2002) Auditing 8th edition, Thomas learning London

2.                  Woolf, E. (1995) Auditing to day prentice hall 1995

3.                  Auditing (manual for ACCA level II) (2000) BPP publishing (UK)2000

4.                  Grey and Mansons (2005) The Audit Process: Practices and cases 3rd Edition: New York, Thones Learning

5.                  Porter, B, Simon D. J. (2003) Principals of External Auditing 2nd Edition

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