Final answer:
A purchasing agent for Franklin Office Supplies could potentially commit fraud by approving fraudulent payments or receiving kickbacks.
Step-by-step explanation:
The question relates to the potential for fraud within a company and how to strengthen internal controls to prevent such unethical activities. A purchasing agent with the responsibility to both receive goods and approve payments can exploit his position by setting up a shell company and approving payments to it for goods never received, or by accepting kickbacks from a vendor in exchange for approving higher-priced invoices. To avoid this, the company should segregate duties so that different individuals are responsible for receiving goods and approving payments.
Preventing Fraud
To prevent the possibility of fraud, it's critical to establish effective internal controls within the company. This means separating the duties of receiving goods and approving invoices, which reduces the opportunity for a single person to commit and conceal fraudulent activities. Additionally, regular audits and reviews of transactions can provide further deterrence and detection of any irregularities.
Strengthening Internal Controls
Franklin Office Supplies can strengthen their internal controls by implementing several practices. These include conducting background checks on employees, requiring multiple signatures on checks, conducting surprise audits, and using electronic payment systems which provide a clear audit trail. Additionally, training employees about the importance of internal controls and the risks of fraudulent activities encourages vigilance amongst staff.