Accounting Fraud at CIT Computer Leasing Group: AIS Controls
This paper analyzes the accounting fraud case at CIT Computer Leasing Group, Inc., as documented by Michelman, Gorman, and Trompeter. It examines the internal control weaknesses within the company's Accounting Information System (AIS), focusing on how the reliance on third-party remarketers to report returned lease equipment created significant vulnerabilities. The paper discusses how an individual employee could exploit these gaps for personal financial gain, evaluates the potential of emerging technologies such as the Internet of Things and sensor-based asset monitoring to address inventory tracking deficiencies, and concludes with a consideration of the ethical responsibilities of both CIT employees and their third-party associates in ensuring accurate financial reporting.
- Introduction: Data Security and Internal Control Weaknesses: Core integrity failures enabling fraud at CIT
- How the Internal Controls Process Was Designed to Work: Remarketer-based reporting system and its gaps
- Technology Solutions to Address AIS Vulnerabilities: IoT and big data as remediation strategies
- Ethical Issues in Third-Party Accounting Reliance: Ethical duties of employees and third parties
- Conclusion: Remaining risks and need for direct sale data
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What makes this paper effective
- Clearly identifies a specific internal control weakness — the inability to independently verify returned computer equipment — and traces how it enabled fraud.
- Moves logically from problem identification to proposed technological remediation, demonstrating applied critical thinking about AIS design.
- Connects technical accounting issues to broader ethical obligations, grounding the analysis in professional standards.
Key academic technique demonstrated
The paper demonstrates applied case analysis: it uses a published academic fraud case as its foundation, then layers on independent evaluation of control failures, technology-based remediation strategies, and ethical reasoning. This approach shows how theoretical AIS concepts translate to real organizational vulnerabilities.
Structure breakdown
The paper opens by identifying the core security and integrity problem at CIT, then explains how the intended internal controls functioned (and why they failed). A third section proposes modern technological solutions such as IoT-based asset tracking. The paper closes with an ethical discussion about the responsibilities of third parties and employees in maintaining accurate records. The Works Cited entry follows MLA format.
Introduction: Data Security and Internal Control Weaknesses
The case of Accounting Fraud at CIT Computer Leasing Group, Inc. by Michelman et al. raises serious concerns about data security within the organization. The integrity of the company's financial data was fundamentally compromised by the honesty — or lack thereof — of the individuals responsible for managing it. From an Accounting Information Systems (AIS) standpoint, the internal controls in place were relatively simple and appeared to be intrinsically linked to day-to-day operations. This was due in large part to the nature of CIT's core business: managing the return of leased computer equipment.
If the individual responsible for accounting for returned computers failed to report them accurately, he could effectively override virtually all controls. Those inaccuracies could then be exploited for personal financial gain. Because the system involved company assets that existed outside of CIT's direct physical control, it was extremely difficult to enforce meaningful internal accounting controls — all of which depended on accurate reporting of returned leased computers.
Were someone to contact a lessee prior to the end of a lease and arrange a separate deal in which computers were returned to that individual rather than to the company, CIT would have virtually no way to obtain an accurate count of the computers actually returned and available for resale.
How the Internal Controls Process Was Designed to Work
The intended internal control process required the lessee to return computer assets to an authorized remarketer (Michelman 575), who would then contact CIT and report receipt of the equipment. Financial data regarding the sale of that equipment was subsequently delivered to CIT from the remarketer. Critically, however, only financial data was transmitted — not the quantity of computers. Because resellers could sell computers at varying prices, CIT had no reliable independent mechanism to track the number of units returned without depending entirely on information provided by third parties.
Technology Solutions to Address AIS Vulnerabilities
The ignorance CIT operated under — and its necessary reliance on others to account for returned assets and their resale prices — could be substantially addressed through contemporary technology. Several dimensions of big data, including sensor data and real-time monitoring of equipment assets, are now available. Technologies facilitated by the Industrial Internet and the Internet of Things (IoT) could provide effective monitoring of computer equipment, enabling the company to determine how many units were returned and to whom.
Were CIT to deploy such technologies, they could greatly strengthen what was a demonstrably flawed AIS process. It must be noted, however, that such controls would not resolve the pricing and accounting inconsistencies to which the company remained vulnerable; they would address only the fundamental inventory tracking problem that led to the most egregious accounting errors.
With the controls that were in place at the time, it does not appear that the risks associated with CIT's accounting vulnerabilities could be adequately managed. A reliable mechanism to obtain sale information directly from the reseller of returned leased computers was absent, and no such mechanism existed under the existing system.
Conclusion
The CIT Computer Leasing case illustrates how even relatively simple internal control structures can be fatally undermined when a company cannot independently verify its own assets. The combination of third-party dependency, absent real-time tracking, and insufficient oversight created conditions in which fraud could be perpetrated with minimal risk of detection. Emerging technologies offer partial remedies to the inventory problem, but the broader accounting and ethical failures at CIT underscore the importance of designing AIS frameworks that do not rely solely on the goodwill of external parties.
Works Cited
Michelman, Jeffrey, Victoria Gorman, and Gregory Trompeter. "Accounting Fraud at CIT Computer Leasing Group, Inc." Issues in Accounting Education, vol. 26, no. 3, 2011, pp. 569–591. Print.
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