Case 3.5 Goodner Brothers, Inc.
1. List what you believe should have been the three to five key internal control objectives of Goodner's Huntington sales office. The Goodner Brothers, Inc. case is an example of when company profits derived from management’s culture facilitated weak internal controls which allowed employees to commit serious fraud. "Goodner's' executives preached one dominant theme to their sales staff "volume, volume, volume." The Goodner Company in an effort to undercut its cut back on operating expenses primarily related to internal controls. "Goodner's gross profit margin averaged 17.4 percent, considerably below the mean gross profit margin of 24.1 percent for comparable tire wholesalers. To compensate for its low gross profit margin. Goodner scrimped on operating expenses, including expenditures on internal control measures." Five key internal control objectives the Goodner's Huntington sales office were should have implemented are;
a. Segregation of duties between employees that start, approve and record transactions. Woody Robinson was given full access to the Goodner Huntington sales office accounting system. Nearly all sales representatives had access to the accounting system, inventory and customers orders.
b. Monitoring of inventory, management at Goodner Huntington facility should have monitored inventory more often than once a year. This infrequent inventory monitoring allowed Woody to perpetrate fraud unimpeded for far longer than if management was doing monthly or at least quarterly inventory counts.
c. Authorization, management should have had a authorization on transactions process in place to oversee and approve the flow of transactions.
d. Physical controls over inventory, with a book inventory of nearly $650,000 the Goodner Huntington facility should have had more stringent security and limited access.
e. Independence, Goodner should have outside independent persons doing a reconciliation of transactions and inventory.
2. List the key internal
a. Segregation of duties between employees that start, approve and record transactions. Woody Robinson was given full access to the Goodner Huntington sales office accounting system. Nearly all sales representatives had access to the accounting system, inventory and customers orders.
b. Monitoring of inventory, management at Goodner Huntington facility should have monitored inventory more often than once a year. This infrequent inventory monitoring allowed Woody to perpetrate fraud unimpeded for far longer than if management was doing monthly or at least quarterly inventory counts.
c. Authorization, management should have had a authorization on transactions process in place to oversee and approve the flow of transactions.
d. Physical controls over inventory, with a book inventory of nearly $650,000 the Goodner Huntington facility should have had more stringent security and limited access.
e. Independence, Goodner should have outside independent persons doing a reconciliation of transactions and inventory.
2. List the key internal