Case Study 1.

Green Grass is a small, family-operated company whose core service is in horticultural care and
lawn care for customers in the local city. The owner of the company is the father of the family. He has
used the company to cover the costs of his children’s college education. At the same time, he has been
able to give his children some work experience and an opportunity to earn their own money to pay for
school. The company has grown steadily over the last few years, and the owner has hired many
employees outside of the family to be able to keep up with the demand of the increasing number of
customers. The company is run from a small office building, and there is only one employee performing
the managerial operations in the company office. The father had usually been in charge of this aspect
of the company, but now leaves the responsibility to his trusted friend, who has experience in
accounting and information systems. This employee is in charge of scheduling the routes of all the
employees and is responsible for payments, receipts, and balancing the books.

The company performs two major operations. First, it provides lawn care using insecticides,
fertilizer, and weed killers. Eight employees are responsible for this activity. They each drive a truck and
are responsible for collecting money from the customers they serve. They are also responsible for
loading and mixing chemicals in the tanks they use during the day. The second part of the operation is
the lawn mowing care. Usually, a four-man crew is responsible for all the machines they use, and they
are responsible for taking care of the lawns on their daily schedule. This is where the owner has hired
his children to work, and the whole team is usually made up of younger workers than the team that
works with the chemicals.

Over the years, Green Grass has experienced small growth and success. Profits have increased
steadily as the company has picked up new clients. However, the owner noticed that last year’s
accounts were different. The revenues increased a marginal amount, while the expenses for the
company increased more than they should have. The owner has noticed that his interactions with his
friend in the office have been fewer and not quite so friendly. Also, his employees have been finishing
their routes later in the day than they had in previous years.

Questions

1. Discuss the opportunities, pressure, rationalization that can be identify in the case.
2. What steps should be taken to make sure fraud does not occur, and what are the costs
associated with these steps?

B. Discuss the Fraud Triangle in relation to the case. Identify the pressures,
opportunities, and rationalization.
Opportunities –
As discussed in the case, the owner engaged a trusted friend to work as the
company's office manager. All managerial procedures, including employee route
scheduling, payments, receipts, and bookkeeping, are performed exclusively by the
owner's trusted employee. Since the office manager was the only one working in the
department, he saw this as an opportunity to commit fraud because he or she could
quickly manipulate the accounts to take money. In the case of Green Grass, there are a
variety of fraud opportunities which include the office manager solely in charge of all the
financial responsibilities takes advantage of the owner's trust by attempting to
manipulate the accurate account balance and hiding the facts of the company, and
stealing the company's cash because the owner trusts his employee he may defer or
loosen certain internal controls and doesn't have time to check what is progressing on
with the company. Another opportunity is when employees are given the option of not
executing their duties efficiently since they're not properly supervised. Thus, employees
may be logging out late after leaving the workplace and/or taking extra jobs or taking
excessively long breaks, and as a result, employees are unable to complete their tasks for
the company ahead of schedule, resulting in late route schedules and transactions, as
opposed to before when tasks were completed on time.
Pressures – A worker's selfishness in wanting to be exclusively accountable for retaining
all of the company's financial transactions may be the source of pressure in this case.
Another reason is that the owner's office manager may be mistreating and mismanaging
the employees. As a result, they were able to tamper with the financial accounts while he
kept a portion of the earnings.
Rationalization – In this case, the management and the employees believe they will not
be detected by the owner for their fraudulent conduct. The office manager may presume
that the owner does not have time to figure out what he's doing and that the owner will
never notice the fraudulent actions that occur in his own company because they know
that the owner will not inspect them and will not tighten the internal controls since the
appointed office manager is a trusted friend and the workers for the operations of the
company are the owner's children which he believes are trustworthy.

C. Identify the existing internal controls in the case. Identify if its weak or strong.
In this case, one of the existing internal controls is the control environment
established for its employees. The control environment is weak because the
management wasn’t able to establish an atmosphere where proper behavior is modeled
and labeled. Since the owner trusts his employees, there was less communication on
what behavior is acceptable and unacceptable to do in the company. Also, the
management didn’t had an effective hiring procedure, the owner hired his trusted friend
without having a proper pre-employment screening. Another internal control existing in
the company is the control activities or procedures, the company’s control activities are
also weak which gave the company a high risk fraud opportunities from its employees.
The company lacks effective internal control activities such as segregation of duties,
system of authorizations, and proper documentation. It was impossible to discover fraud
before it became larger because the company only had an office manager who is
completely responsible for all financial activities such as payments, receipts, and
bookkeeping.
In this case, one of the existing internal controls is the control environment
established for its employees. The control environment is weak because the
management wasn’t able to establish an atmosphere where proper behavior is modeled
and labeled. Since the owner trusts his employees, there was less communication on
what behavior is acceptable and unacceptable to do in the company. Also, the
management didn’t have an effective hiring procedure, the owner hired his trusted friend
without having a proper pre-employment screening. Control activities or procedures are
another internal control that exists in the company; however, the company's control
activities are also weak, exposing the company to a significant risk of fraud
opportunities from its employees. The company lacks effective internal control activities
such as segregation of duties, system of authorizations, and proper documentation. It
was impossible to discover fraud before it became larger because the company only
had an office manager who is completely responsible for all financial activities such as
payments, receipts, and bookkeeping.

D. Provide recommendations on how to minimize and prevent fraud identified in the

case.
To avoid company fraud, Green Grass company should establish a work
atmosphere where there is a culture of honesty and high ethics, and have an effective
internal control framework to be able to prevent and detect employee fraud.  This
implies that the management  must provide fraud education and training to
all employees. To avoid hiring dishonest personnel, the owner must conduct a pre-
employment screening before hiring them, and even if he trusts his employees, he must
monitor the company's progress and operations activities on a regular basis. In addition,
the company must have an effective accounting system in place to detect fraud earlier
and ensure that all transactions recorded are true and valid. The company's office
manager should not be solely in charge of the managerial operations and to ensure
management independence and objectivity, segregation of duties is needed, particularly
for Green Grass's financing activities, which include making payments, receiving
customer payments and balancing the books.
The company's office manager should not be solely in charge of the managerial operations