The Greater Providence & Trust Embezzlement

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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. In order for any organization to avoid any type of fraud would be to have good internal controls in place. Good internal control requires that no single employee be given too much responsibility over business transactions or processes (Romney & Steinbert 2010). An employee should never be given the opportunity to be in a position to commit and conceal fraud. In the case of Greater Providence Deposit & Trust the organization did not have proper internal controls in place. One internal control that this organization lacked was the segregation of duties control. Effective segregation of duties is achieved when the following functions are separated Romney & Steinbert 2010): • Authorization – approving transactions and decisions. • Recording – preparing source documents, entering data, maintaining journals, ledgers, files or data bases; preparing reconciliations and performance reports. • Custody – handling cash, tools, inventory or fixed assets; receiving customer checks and writing checks on the organization’s bank. Due to the lack of segregation of duties, James Guisti, who was a trusted 14-year employee was caught embezzling $1.83 million from the bank. Guisti had the authority to approve loans up to $25k and processed 67 loans that were bogus. Lucy Fraioli who was Guisti’s employee and cosigned the checks as she thought there was nothing wrong with them. The checks were cashed by Marcia Perfetto, the head teller at the branch. In order to prevent this type of fraud, no one person should have full control of the loan process from beginning to end (Arsenault, 2011). All proper documentation must be submitted and approval should come from more than one person. Once the loan has been approved and

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