Pader, Aubrey Margarette 4/BSMA/B

Case Analysis on J & J Materials’ $9 Million Embezzlement Case

I. Main Points/Highlights of the Case
J and J Materials recruited Platt as a parttime bookkeeper in December 1998 and the
proprietor was so satisfied with her work performance and made her a full-time employee.
Platt was a reliable worker who soon was in charge of four businesses' finances. However,
Platt stole the first $650 from her employer without anyone noticing because she was having
trouble paying the rent and was afraid of being evicted. From there, it got worse. She got off
to a slow start, but by 2002, she had embezzled nearly $360,000. According to court records,
she had stolen an approximate of 6.9 million dollars from the entity over a six-year period. The
Platts richly outfitted every one of their homes and hosted extravagant gatherings. They also
give excessive gifts and dwells in too much spendings.
Platt admitted to stealing $9 million, but the embezzlement was only $6.7 million, according
to the auditors. Aside from the two million dollars’ worth of personal property granted to
Ferrerira, a judge in the Rhode Island Superior Court ordered Platt and her husband, who
admits to be an accomplice, to pay Ferreira $16 million which includes penalties. The United
States District Court for the District of Massachusetts recommended Platt spend at least 55
months in prison for his guilty plea to interstate transportation of stolen property.
II. Discussion of the Main Problem
The main problem in this case is that no one in the organization detected the
embezzlement practices of Platt. There are two types of Platt's non-shareable issues. First,
there are business reversals, which are people who think their problems are caused by things
they can't change, like economic downturns. In this instance, Platt wrote the initial check to
pay the rent because she was worried about her family being evicted and her husband was
unemployed. Gaining status is the second category to consider. In this setting, people are
driven by her goal to improve her status and live above what she affords. The issue was not
brought about by a desire for a better lifestyle; rather, the motivation for the breach of trust is
the unwillingness to accept a lower status and the incapacity of obtaining finer things through
correct means.
It is evident that Platt’s motivation is her desire of fine materials things in this instance, as
evidenced by the number houses, automobiles, and furniture and fixtures she purchased—
none of which she could have purchased on her own. The need to pay the rent became the
initial source of Platt's perceived pressure, but it soon expanded including sustained lifestyle
that is beyond her means. Her significant other appreciated gathering vehicles and she stole
to the point of buying 27 for him. Platt was supporting her family on her own, without the
assistance of her unemployed husband; There was no additional money for luxuries. Platt, on
the other hand, owned horses and a number of elaborately furnished homes.
A thorough understanding of the accounting system was required for a fraud of this
magnitude, which involved multiple businesses and cost $9 million. After starting out as a part-
time bookkeeper, Platt soon became a full-time employee. She worked quietly and diligently,
but the system appeared to be fairly uncomplex. As soon as Platt won Ferreira's confidence,
she was given a lot of responsibility. Without question, she was permitted to handle the books
of several organizations. She kept track of every bank statement. She likewise didn't seem to have a supervisor to report with. This allowed fraud
to take place along with the absence of strong internal controls.
III. Risk Analysis
Risks Justification Level Plan (P) Do (D) Check ( C) Act (A)
1. Operational Risk The case of Platt shows Extremely Formulate processes Implement the Monitor regularly In case when
(Detection of fraud and an operational risk on High ensuring that all formulated the implementation there are
illegal acts) the entities capability to transactions are processes in all on the process. transactions that
detect fraud and illegal documented in forms of did not adhere
acts. It is evident that accordance with the transactions with the
the proprietor imposes company’s policies. regardless of its processes
strong trust towards type, size, and stipulated, trace
Platt which allows her manner. the employees
to manage the responsible for
business in any manner the breach and
she intends to do. The take corrective
lack of supervisor to actions.
oversee the
management of Platt
also contributed to the
organization’s failure to
detect the illegal acts.
2. Operational Risk Operational risk of low Extremely Strengthen the Follow and Consistently For instance
(Low internal control) internal control is High internal control strongly integrate consolidate the when the
observable in the through carefully the code of ethics transactions of information of
organization. It is monitoring the and business every employee the transaction
because when the activities of each conduct within the especially those do not conform
mismatch between employee and do not organization. concerning the with the type,
financial accounts let subjective financial aspect of nature,
occurs, overriding of perception upon an the organization treatment, and
the amounts as employee regulate and its long-term disclosure that
demanded by Platt the credibility of the objectives. transaction
happened regardless services he/she requires, strictly
of its noncompliance renders. impose
with the accounting investigation on
 practices. This entails the employees
that the company has involved and
low internal control make sure to
because instead of take preventive
acting over the measure.
discrepancies and
expose the
embezzlement
activities, it adhered to
the command of a
trusted employee
causing to heightened
the effects of the illegal
actions by Platt.
3. Management Risk It was mentioned that High Decentralized the Ensure that each Assign supervisors Constantly
Platt was not organizational employee and or managers to monitor the
responsible to report to structure of the executive in the overlook the proper effectiveness of
any supervisor, hence, company to have company has designation and the implemented
allowing her to sustain each employee and their own defined conduct of each organizational
the illegal acts she executives their own work assignment responsibility. structure in
conveys. Moreover, delegation and work so that the tracing attaining the
Platt is assigned to the description. in terms of company’s
finances of various discrepancies objectives and
companies owned by would be developments
Ferreira which made to transparent. should be done
have more access on in cases that it is
the finances of each perceived to be
company she handled. low in
effectiveness.

IV. OPPORTUNITIES
Opportunities Justification Level
1. Stratified recruitment and It was mentioned that Platt did not earn a college degree which perhaps directly or High
employment processes. indirectly contributed towards her embezzlement activities. For example, it caused

2. Well-defined organizational
structure.
3. Improvise the performance
management of the company
considering the benefits and
compensation each employee is
entitled to.
her to have economic deficiencies before being hired by Ferreira which ignites her
non-sharable issues concerning gaining status. Despite the increased campaign for
anti-discrimination in the workplace about educational background, bookkeeping or
any jobs involving accounting and financial reporting requires technical knowledge
learned only through educational degree. This way, the employee understands the
weighs of any illegal acts and the consequences of its commitment.
Since in the case, no Platt do not have a supervisor to report to, no one monitors her High
activities in the bookkeeping of the companies accounting and financial reports. With
this, the company should learn from this occurrence and should craft a well-define
organization structure delegating each employee of their own work tasks within the
company and assign supervisors or managers to oversee the day-to-day operation
of the business.
Economic deficiencies of the employees are often one of the motivations that leads Moderate
them to commit fraud or illegal acts. With this, the company should integrate high
consideration on each employee’s satisfaction of the form concerning compensation
and benefits.

V. RECOMMENDATIONS
Based on the case's analysis, I recommend that the company improve its business ethics by identifying the weaknesses in the internal control
of the company. The weak internal control system of the company enable Platt to continuously commit fraudulent acts in a length of timeThe
internal control framework for most U.S. companies is the Committee of Sponsoring Organizations of the Treadway Commission (COSO) Internal
Control—Integrated Framework (Rittenberg et al., 2012).
The actions, policies, and procedures that demonstrate the organization's management's overall attitude toward internal control and its
significance are the focus of the control environment (Swidey, 2006). Integrity, ethical values, and a commitment to competence must be the
goals of management. Because it sends warning toward the employees regarding the significance of internal control through its actions,
management must set an example for others to follow. An ineffective control environment will result when the management model includes
unacceptable behavior (Wells, 2011). For this situation, there is an absence of a supervisor and proprietor have overconfidence instill towards
Platt that she’s not reviewing the bank records as well as granting Platt full access of the checkbooks. There was a tone from management that
inconsistencies were not important, so employees could have reported them to management. Because management failed to communicate
behavioral standards through codes of conduct and example, the owner failed in his duty. Management, through its activities, should provide
clear signals to employees about the importance of internal control (Cohen et al., 2010). By allowing Platt to handle all financial matters without
requiring supporting documentation, management failed to fulfill its responsibility. The low or nonexistent degree of the board investigation,
alongside frail inner control, was a solicitation to fraud Ruggeiri, 2012).
The company ought to have separated responsibilities in order to enhance the controls and prevent fraud. Limiting check signing authority to
a certain dollar amount or requiring a second signature for checks exceeding a certain dollar amount are two additional preventative measures.
Additionally, the company should have established procedures that required approval for bank transfers. These controls are essential, however
in the event that they had been set up, the misappropriation and its greatness could not have possibly occurred.

IV. REFERENCES
Cohen, J., Ding Y., Lesage, C., Stolowy, H. (2010). Corporate fraud and managers behavior; Evidence from the press. Journal of Business Ethics,
95, 271-315.
J&J Materials, retrieved from http://jjmaterials.com/.
Rittenberg, L. Johnstone, K. & Gramling, A. (2012) Auditing A Business Risk Approach. Mason OH; South-Western Cengage Learning.
Ruggieri, L. (2012). From horses to log cabins – A $9 Million Embezzlement Case: How did the owner not know? Journal of Business Case
Studies, 8(6), 575-584. Retrieve on December 16, 2022 from https://www.cluteinstitute.com/
Swidey, N. (2006, September 17). The Inside Job; The Boss Thought she was the Hardest Working Person on his Payroll, Maybe She was, It’s
not so Easy Building And Hiding An Extravagant, Second Life with Company Money But How Could A Scam This Big Go Unnoticed for
So Long? The Boston Globe, 1-4.
Wells, J. (2011) Principles of Fraud Examination. New Jersey, John Wiley & Sons.