Westchester Distribution Inc

Westchester Distribution Inc., a reputable beer distributor, received a concerning letter from a customer’s attorney. The letter stated that the customer, Mr. Moon, received “improper discounts” on a shipment of beer. The tone of the letter is hostile, and the attorney asks that Westchester refund the sale to “avoid any prejudice”. Vince Patton, the President of Westchester, investigated the situation and found that some of his employees were involved in illegal activities. It was revealed that they were involved in bribing customers along with falsifying receipts and broken bottle vouchers. Two salesmen, Mario and George, bribed Mr. Moon, and now the distributer faces a potential 45 day shutdown if ABC, Alcohol Beverage Control, is informed. Furthermore, several of the Westchester’s Standards of Conduct were violated therefore Vince needs to consider how to discipline his employees. Vince also needs to reevaluate his internal controls to prevent events like this in the future. Mr. Patton should take quick action to minimize the damage of his employees’ acts and try to prevent the shutdown.
The cause of this sticky situation is that there were several failures in the company’s internal control system. Exhibit 5 in the case provides evidence of each important area of internal control, and the case facts confirm several breakdowns in each area. First, there was no formal control mechanism to reconcile the neon sign inventory. Employees had free access to point-of-sale merchandise. Second, receipts were falsified and approved, revealing that the accuracy checks of the internal control system were flawed. Additionally, the same employees taking the signs handled the recording of the transaction, and once the signs were taken, they were not tracked. Lastly, bottle credits were falsified; therefore a breakdown in the accounting review system occurred. The internal control system allowed the salesman to act in their own self interest, the effects of which put the