Assignment # 1

Case 6.1
The Greater Providence Deposit & Trust Embezzlement

Accounting Information Systems – ACC 564
Professor Jim Ridilla

October 23, 2011

Discuss how Greater Providence Deposit & Trust might improve its control procedures over the disbursement of loan funds to minimize the risk of this type of fraud.
Segregation of duties is a fundamental element of internal control in any company. No single employee should be given too much responsibility over certain business transactions or processes. When one person in an organization has too much control or access over these responsibilities, problems can and often do arise.
In the case of The Greater Providence Deposit & Trust, James Guisti was a manager and trusted employee. Mr. Guisti’s job required him to know the details and intricacies involved in the operation of processing consumer loans. Adequate segregation of duties were not put into place at the Bank, creating a scenario that allowed Mr. Giusti to use his knowledge to embezzle close to $2 million from his employer.
Mr. Giusti was authorized to make consumer loans up to a certain dollar limit without loan committee approvals. He then used his position of authority over the customer service representative, Lucy Farioli, to have her co-sign loan checks that were, unbeknownst to her, bogus. Mr. Giusti should have been required to have a member of upper management, not Ms. Fraioli, co-sign the checks. Backup documentation along with an explanation of the purpose of the check would have been required. The reviewer of these records should not blindly trust the requestor at face value. The signer would need to review the check and accompanying information, making sure that all the amounts agree, the signatures on the legal documents were signed properly, an accurate credit report was included and the name, address,