1. An employee has been stealing some of the company's merchandise and selling it. Is this behavior financial fraud?
2. Suppose the employee in question 18 covers up the theft by accounting for it as spoilage. Would accounting for the stolen items as spoilage be financial fraud?
3. Suppose an accounting clerk who knows nothing about the theft in question 18 erroneously records the ‘‘lost'' parts as spoilage. Would that be fraudulent financial reporting?
4. Explain the importance of separation of duties to a system of internal controls.
5. How does internal control improve financial reporting?