Lisa Herman
ACCT 500D
Soczek
March 31, 2016
Westchester Distributing Case

Vince Patton at Westchester Distributing, Inc. is facing a quite a dilemma in the face of a recent fraud that has been uncovered. After two employees, Carter Mario and George Pavlov, sold beer to a customer with the offer of a “kickback” and subsequently submitted false expense reports to be reimbursed for the cash outlay, and after Joe Roberts, the VP of Administration perpetuated the act by misappropriating a neon sign to pay off the customer, Patton finds himself in violation of the California Alcoholic Beverage Control and in danger of being out of business for 45 days. In order to come to a solution for Mr. Patton, we must first discuss the specifics of the fraud and what can be done in the future to prevent such an incident. Given the myriad definitions of fraud in accounting and legal literature, this act qualifies as such because it was intentional, mislead the company’s shareholders about a material fact, and caused financial damage to the company. The specific fraud schemes employed were an expense reimbursement scheme by submitting fictitious expenses, inventory larceny in the form of fictitious sales by claiming $100 more in sales than was collectible, and inventory misuse by misusing a neon display sign. Further, the three components of the fraud triangle were present. First, the system set up for sales and expense reporting created the opportunity for the fraud to be committed. Both George and Carter faced relaxed expense policies with no controls put in place to verify their claims. Second, the three could rationalize the act. Carter states in his letter to Vince Patton that he felt he was trying to achieve the “scenarios” that Vince and Elizabeth envisioned, therefore carrying out the company’s wishes. While George’s views are not known, one can imagine he felt