Reviewed by William G. Mister University of North Carolina — Chapel Hill
The first part of this book is a reprint of a series of 12 articles by Dicksee on “Fraudulent Accounting” appearing in The Accountants’ Journalfrom May, 1924 to April, 1925. The second part was actually published 20 years earlier as volume 30 of the Accountants’ Library. The reprint edition is dated 1980, but the quality of production is poor, and at times even distracting.
The book is actually a treatise on internal control rather than fraud. Students of the subject will find the series of articles by Dicksee interesting reading, especially in the post Foreign Corrupt Practices Act era. While the advent of the computer and other technological changes have necessitated some change, it was striking to find that the internal controls advocated by Dicksee are, for the most part, applicable today.
Dicksee treats fraud in two broad categories: fraud connected with the receipt or distribution of monies and fraud aimed at “presenting accounts showing an unduly favorable position.” He notes that the double entry bookkeeping system is a natural deterrent to fraud. The necessary “two-fold nature of the falsification at least doubles the chances of early detection.”
The second article in the series contains Dicksee’s views on the causes of fraud. One of the benefits of reading an older book is that it sharpens an awareness of the changing environment of accounting. For instance, Dicksee felt that the “motives that may deflect the two sexes from the path of honesty are not necessarily identical.” The most common causes of dishonesty among men are listed as: (a) gambling; (b) extravagance; (c) drink; (d) actual poverty; (e) want of loyalty; and (f) want of moral stamina. For “women and girls . . . gambling and drink are much less likely causes of dis honesty than in the case of men and boys. Extravagance, upon the other hand, is probably in general a more real temptation, while actual poverty is more likely to be an existent cause. As regards loyalty: If it be the fact that loyalty is, in essence, a genuine understanding between employer and employed, it follows that a failure to understand the psychology of the opposite sex may have its real dangers. At present there is perhaps not sufficient data upon which to base a generalization. Time alone can show.” Such views could be seen as sexist today and I doubt they would be published.
To control cash, several internal controls were recommended. Imprest accounts should be used where possible. When receipts come by mail, have at least two persons open the mail. The handling of cash and accounting for cash should never be assigned to the same individual. Payments should be made by check rather than cash and, of course, all payments should be properly vouched. In connection with payroll, it should be verified physically that persons receiving paychecks are actually employed. These among other recommended internal controls for cash might be found in a modern textbook dealing with internal control. For control of non-cash assets, a perpetual inventory system and gross margin percentage are discussed as primary controls. Again, while written in 1924, these discussions have applicability today.
Professor Dicksee overestimated the power of data processing. In accumulating mass transactions he noted that “if the business is of sufficient magnitude to justify the installation of a Hollerith machine or a Powers machine for the record of transactions, no trouble will arise over the accurate counting of these conventional quantities, whatever they may be.” He apparently did not anticipate the advent of computer fraud growing from the use of successors to these early hand wired forerunners of the modern computer. The IBM and UNIVAC computer can trace their history back to Hollerith and Powers, respectively.
Professor Dicksee recognized the limitations of internal controls. “It is not to be expected that any system of internal check — or, for that matter, any system of audits — will provide an infallible means of detecting fraud skillfully concealed; it is submitted that the suggestions embodied in the series of articles will, if carried out with unwearying fidelity, go a long way to ensuring that detection takes place at the earliest possible moment.”
Articles 9 through 12 in the series deal with the role of the auditor in relation to fraud. Long before court decisions such as Continental Vending and Yale Express, Professor Dicksee recognized that the role of the auditor in detecting and disclosing fraud may be much greater than defined by law, at that time the Com-panies Acts. The auditor’s appointment, he observed, is based on a contract, and the express or implied provisions of that contract have to be determined before any opinion can be formed as to the limit of the auditor’s responsibility. He discusses the necessity of an audit including subsequent events, a now commonly accepted audit practice. There is also a discussion of the need for auditor in-dependence and how much reliance the auditor can place on the work of others. Both topics are relevant accounting issues today.
Professor Dicksee wrote the series of articles in a personalized and direct style. He did not mince words and his meaning is seldom unclear. At one point, for instance, in discussing the audit of companies holding stock in other companies, he states that when the auditor does not have access to the books of subsidiary companies “The whole purpose of the audit is accordingly defeated, and the audit itself is reduced to a mere formality, if not to an absolute farce.” Professor Dicksee displayed a tendency to over use the phrase “in the nature of things”; while this might not have been apparent in a series of separate articles, it stands out when they are reproduced together in a single volume. This might have been edited out.
I found the book interesting and it provides a useful historical perspective on the issue of internal control. The second part of the book Fraud in Accounts is redundant, as it was an earlier treatise on the same topic.
