Goodner Brothers Case

The Goodner Brothers' case is an example of internal control failure. There are several issues in this case that made the situation of fraud and theft by Woody possible. The situation could have been prevented by applying some internal control measures by the Goodners. They should have implemented these control policies to avoid the theft and fraud.

There should have been "segregation of duties between members to maintain, implement and record transactions."

There was lack of "documentation and transaction recording to facilitate the auditors discover the fraud easily and on time."

The access to the inventory and accounting system was easy for all the employees. There was no governance that could keep everything in check. "The bookkeeper, sales reps and virtually everyone could update or modify the transactions in the system."

"There was a lack of periodic and independent reconciliation process to identify the theft. " The Goodner's safety measures for asset safeguarding were nonexistent. The only safety measure was the trust towards the honesty of the employees, which wasn't well enough.

The Goodners should have implemented the financial reporting policies that were more controlled, restricted and central so that employees didn't have opportunity to commit fraud and theft.

As though the internal auditors do not have any specific audit rules and regulations like the independent auditors, they should be careful about the internal initiatives in their own organizations and try to improve the control measures or prepare themselves well for existing fraud and theft of inventories.

The center of the existing problem for Goodner was the lack of control. As for the independent auditors, the case states that they never planned their audit considering the internal control s of the sales offices. If the auditors had considered AU Sec. 314- 5, they could have identified the weak points of the management and assessed the risk. The understanding of the risk and internal control could have warned the management to take actions to prevent any future theft and losses.