Case Study:
Bluegrass Construction Co. operates throughout Kentucky. The owner, Art Waverly oversees company operations and employs 15 work crews. Construction supervisors report directly to Waverly. Most supervisors are longtime employees, so Waverly trusts them. Waverly's office staff consists of an accountant and an office manager.
Because employee turnover is high in the construction industry, supervisors hire and fire their own crew members. Supervisors notify the office of all personnel changes. Also, supervisors forward to the office the employee W-4 forms. Each Thursday, the supervisors submit weekly time sheets for their crews, and the accountant prepares the payroll. At noon on Friday, the supervisors come to the office to get paychecks for distribution to the workers at 5 p.m.
The company accountant prepares the payroll, including the payroll checks. Waverly signs all payroll checks. To verify that each construction worker is a bona fide employee, the accountant matches the employee's endorsement signature on the back of the canceled payroll check with the signature on that employee's W-4 form.
Required:
1. Identify one way that a supervisor can defraud Bluegrass Construction under the present system.
2. Discuss a control feature that Bluegrass can use to safeguard against the fraud you identified in requirement 1.