Ashley Copper Company is based in a disused copper mine situated in an

economically depressed area. The mine has been reopened as a museum and tourist
attraction. The income from the business is generated from ticket sales to visitors for a
ride down the shaft in a lift cage, for a trolley cart rail journey into the old copper
mine and for a guided tour. The shop, situated underground as part of the museum,
sells copper based products and other souvenirs which provides an additional source
of income.

Ali is a qualified accountant and a member of ACCA which has an ethics Technical
Advisory Service as part of its support to members. Ali had been unemployed for a
short period before being appointed over 12 months ago as the financial accountant.

Jay, the assistant manager, is very materialistic. He loves fast cars and has previously
said to Ali that he would buy one if only he could save up enough money. Jay works
at the museum escorting the customers to the mine shaft entrance, collecting their
tickets as they enter the lift cage and acting as their tour guide underground.

Sam, is Jays mother and the owner of Ashley Copper Company. Sam is a very close
friend of Ali's father. Sam owns 100% of the shares in the company.
Soon after she was appointed, Ali, who reports directly to Sam, had set up new
accounting and internal control systems for the business.

Charlie sells all the tickets from a dispensing machine in the sales office using a
colour coded roll for each day with each roll of tickets numbered in sequence for that
day. Charlie collects takings from customers in an electronic cash register with an
integrated credit / debit card terminal.

At the end of each day, after Charlie has finished work, Jay unlocks the cash register,
reconciles the physical cash and cheques received with the cash register (till roll)
record, and finally reconciles all daily sales takings (including credit / debit card
sales) with all the tickets he has collected from customers. He then completes a sales
reconciliation schedule recording cash, cheques and credit / debit card sales itemised
for each day before putting the cash, cheques, and all tickets collected from customers
into the office safe. Jay then removes and destroys what remains of the ticket roll
from the dispensing machine, replacing it with a new colour coded roll of tickets
ready for the next day. He also removes and disposes of the used cash register roll for
that day, replacing it with a new blank roll.
All cash and cheques from the safe are taken by Jay to the bank at the end of each
week. Finally, the bank paying-in slip counterfoil, along with the sales reconciliation
schedule containing a daily record of the number of tickets sold for the week (by sales
type) and the associated tickets for each day, are then submitted on a weekly basis to
Ali for recording in the books of account.

The shop is solely managed by Sam. Sam orders the inventory, collects and counts the
takings and deposits these at the bank on a weekly basis, submitting to Ali all the bank
paying-in slips, the associated cash register records, all purchase invoices and expense
receipts all on a monthly basis.

In the past two years, during the peak period, the number of visitors per day has
consistently been about three times higher than the average for the non-peak period
and sales have remained broadly static each year. Over the same two years this pattern
of sales has also been reflected at the shop, indicating that shop revenues are largely
dependent on visitor numbers. Shop sales have historically also accounted for about
40% of the total turnover of Ashley Copper Company annually.

At the end of the last financial year, Ali was producing the draft financial statements
and noticed that shop takings had increased by approximately 50% and the gross
profit margin had also increased quite significantly from the previous period, with the
greater percentage increase being in the off-peak period.

Shop sales had accounted for approximately 55% of the total sales for the year, while
over the same period, ticket sales were consistently about 20% down on the previous
year, in both the peak and off-peak periods. Ali had also noticed that the business
bank balance was 10% higher at the end of the year than at the end of the previous
year, despite costs on both sides of the business remaining stable over time and there
being no other deposits, bank transfers or any significant change in the dividends paid
to Sam in the current year.

Ali finds these results rather surprising and has also noticed (but had not mentioned
this to Sam) that Jay has recently bought a brand new luxury sports car. She suspected
that Jay may have been defrauding the company.

A. Type at least five key facts that Ali would need to be aware of when deciding her
options:

1. Sales in the shop have increased significantly, while the ticket sales turnover
has declined in the same period, as compared with the previous financial period.
2. Ali is relatively new to the job as accountant and has been appointed by Sam,
a good friend of her father. She was previously unemployed and suitable alternative
employment may be very hard to obtain.

3. Ali has set up the accounting and internal control systems within the
business.

4. Weak internal control and a lack of segregation of duties seem to exist

within the business because Jay collects the tickets for the mine tours, reconciles the
tickets sold with sales made, banks the takings and has the opportunity to remove cash
and destroy associated tickets before any supporting documents are submitted to Ali.
The museum shop is managed and controlled by one person, Sam the owner, who
manages the shop, orders inventory, collects the takings and makes all bank deposits.

5. Charlie, the ticket sales person had no opportunity to defraud the company
because all receipts in the cash register are reconciled against the tickets collected by
Jay from all customers. Therefore cash could not have been removed by Charlie
without Jay noticing any discrepancies.

6. Sam would not seem to have the motive (as 100% owner) to have been
involved in any fraudulent activity and has no involvement with ticket sales.

7. Jay has recently acquired a luxury car which he probably could not afford to
finance on his current salary.

8. Ali suspects Jay of fraud.

9. Ali has no proof to support her suspicions about Jay.

10. Sam is Jays mother.

11. Sam is a very close friend of Ali's father.

B. List at least three ethical issues, dilemmas or questions that you believe Ali may
face in this situation.

1. What is Alis professional and ethical duty to explore the reasons for the
unexplained financial results, and what grounds are there for suspecting any illegal
activity?

2. Does Ali, as the company accountant, have a moral obligation to protect the
interests of Sam, the owner of Ashley Copper Company, from potential fraud by Jay,
her son?
3. To what extent is Ali personally responsible for any suspected losses by
allowing the weak internal control situation to develop?

4. To whom, if anyone, should Ali report her suspicions about Jay?

5. How should Ali handle her suspicions? Does she have a duty to collect more
evidence before acting or should she act as quickly as possible as far as reporting this
is concerned?

6. What implications will Ali reporting her suspicions potentially have for Sam,
for Jay and for Ali personally and professionally?

7. What can Ali do to minimise any potential damage or conflict within the
business and the family, caused by this situation?

8. What are the ethical consequences of not doing anything?

C. List at least 3 threats to fundamental professional principles that Ali could face in
this situation.

1. Confidentiality: Ali must take care when choosing with whom she may
discuss the situation.

2. Integrity: The company is small, and all the staff work closely together as a
team. Such familiarity may threaten Alis resolve to do the right thing in this
situation. Also, her integrity might be threatened by perceived intimidation. (After all,
Jay is the son of the owner of the company.)

3. Objectivity: Ali was responsible for the companys internal control system.
When considering possible weaknesses in the system, she must not allow her
objectivity to be threatened by the fact that she is reviewing her own work. Neither
must her objectivity be impaired by her familiarity with Jay. It might also be that she
fears for her job, and so self-interest may threaten her objectivity also.

4. Professional competence and due care: Ali is the company accountant, and
should be qualified to identify anomalies in the accounts. However, she may not have
experience of handling investigations into suspected fraud. Her responsibility for
setting up the systems may threaten her need to seek appropriate advice.

5. Professional behaviour: In view of the closeness with which the members of

the team work within the company, Ali may feel personally wronged by Jay if it is
proven that he has been defrauding the company. This would imply that Jay has been
undermining her systems. She must ensure that she has adequate information before
acting upon it. Her professional behaviour may be threatened by her advocacy of the
systems she has established.

6. Professional behaviour: In view of the closeness with which the members of

the team work within the company, Ali may feel personally wronged by Jay if it is
proven that he has been defrauding the company. This would imply that Jay has been
undermining her systems. She must ensure that she has adequate information before
acting upon it. Her professional behaviour may be threatened by her advocacy of the
systems she has established.

D. Explain how Ali could use any internal procedures or services to help her in this
situation.

1. As an independent and family owned business, there seem to be no formal

internal procedures available to Ali to safeguard against these threats, other than to
report matters to her immediate line manager, Sam the owner.

2. Ali does have the opportunity to contact her own professional body (ie
ACCAs Technical Advisory Service) to seek advice, which may help her safeguard
against any threats to the fundamental principles.

3. As there is no official governance structure or any internal audit function

within such a small organisation, Ali herself may need to personally carry out any
internal audit investigation before deciding how, or whether to take matters any
further.

E. List all the potential courses of action available to Ali in this case that you can
think of.
(Please note that you may identify alternatives that might not be acceptable or
advisable in professional or personal ethical terms within your list)

1. Discuss her suspicions directly with Jay.

2. Mention the matter to her father and ask for advice.

3. Talk to Sam directly about the unusual trading patterns.

4 Talk to Sam about improving internal controls.

5. Consult ACCA for ethical advice.

6. Collect more evidence about the potential fraud and investigate Jay further.

7. Carry out an investigation into the shop sales to establish the reasons for the
unexplained changes to turnover and profit margins.

8. Contact the police about her suspicions directly.

9. Having documented her concerns, wait a few weeks before taking any
action.