Question

Patrick works for McGill’s Computer Repair, owned and operated by Frank McGill. As a computer technician, Patrick has grown accustomed to friends and family members asking for assistance with their personal computers. In an effort to increase his income, Patrick started a personal computer repair business that he operates out of his home on a part-time basis, working evenings and weekends. Because Patrick is doing this “on the side” for friends and family, he does not want to charge as much as McGill’s charges its customers. When Frank McGill assigned Patrick the task of developing the budget for his department, Patrick increased the amount budgeted for computer parts. When the budget was approved, Patrick purchased as many parts as the budget allowed, even when they were not needed. He then took the extra parts home to use in his personal business in an effort to keep his costs down and profits up. So far, no one at McGill’s has asked about the parts expense because Patrick has not allowed the actual amount spent to exceed the budgeted amount.

Requirements

1. Why would Patrick’s actions be considered fraudulent?

2. What can a company do to protect against this kind of business risk?

Short answer

Answer

The managers should review the budget and ask questions from the preparatory about the budgeted figures.

Step-by-step solution

Reason why Patrick’s actions are considered fraudulent

Patrick is using McGill’s resources to buy computer parts for his side income from his personal customers which is not ethical. That is why Patrick’s actions will be considered fraudulent.

What can a company do to protect against this kind of business risk

The managers should review the budget and ask questions from the preparatory about the budgeted figures. Also, the parts should be purchased in portions and not in bulk.