Westchester Distributing, Inc. (A) Harvard Case Solution & Analysis

Westchester Distributing, Inc. (A) Case Solution


Westchester Distributing Inc. was a distribution company that dealt in Beverage Industry. The company was founded by Vince Patton, who was an ex-marine. The company was owner based;therefore it lacked proper internal controls in the organization. The company recently faced a legal dilemma that could force the closure of company. A salesman and his manager had bribed a customer and the customer now wanted to return the order, the real issue here was the weaknesses of internal controls in the company that allowed such fraudulent activities to occur.

Weaknesses in Internal Controls of Westchester  Distribution

Many things can be seen to be wrong with Westchester Distribution Inc. such as their weaknesses in internal control;as well as the controls are not strong enough to prohibit employees performing unethical actions. COSO framework for internal controls provides guidelines for companies to set-up internal controls in the company which allows it to achieve its major objectives in an efficient way. COSO framework classifies internal control into 5 components; these components can be used to identify weaknesses in the internal controls of the company. Following are the components of internal controls and the identified weaknesses in the internal controls of Westchester Distribution Inc.

• Control Environment

The industry in which the company operates is very competitive and the owners of company usually require their management to provide good results regardless of conditions, this is also the case in Westchester Distribution, where Vince Patton demands results from his manager. One of the managers, George Pavlov,bribed a customer along with another salesman, this shows that

• Risk Assessment

Westchester Distribution is a small company and the top management constitutes only of 2 people, Vince and Betty, who were also involved in day to day management of the company, therefore the management was faced with too much load and did not performed assessment of risks at appropriate levels. If Vince had assessed the controls placed in the organization earlier, he would have easily identified that neon inventory was used as bribe to customers and therefore, he would have stopped such an incident from happening.

• Control Activities

The company places minimal internal controls such as the expenses that the employees claim were not properly checked and usually authorized by Vince himself, as the owner of the company also had other works and did not place much importance on these expenses. This allowed employees to take unethical advantage of out of pocket allowances....................

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