Reference no: EM132917799

Adam Smith was a kind of one-man mortgage broker. Being a small operation, he employed one person, Amanda Brown, who did all of his bookkeeping. Brown 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, Brown 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 creditors. The company went bankrupt, Brown did some jail time, and Smith lost everything.

Problem 1). What were the internal control weaknesses in this case?

Problem 2). Many small businesses cannot afford to hire enough people for adequate separation of duties. What can they do to compensate for this?