CASE 3.4
FIRST KEYSTONE BANK
Synopsis
In January 2010, three tellers of a small branch of First Keystone Bank were arrested by local
law enforcement authorities and charged with embezzling more than $100,000 from the branch’s
ATM over a period of two years. During that same time frame, the three tellers also allegedly stole
more than $20,000 of parking funds collected by the local municipality—municipal employees
periodically dropped off at the First Keystone branch large bags of coins collected from parking
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Case 3.4 First Keystone Bank 195
First Keystone Bank—Key Facts
1. In 2006, Jean Moronese was promoted to head teller of the Swarthmore, Pennsylvania, branch
of First Keystone Bank; Moronese had been an employee of the branch for four years.
2. In 2008, Moronese began taking cash from the branch’s ATM to pay her credit card bills, rent,
and day care expenses.
4. In the fall of 2008, Moronese convinced a subordinate, Kelly Barksdale, to conceal her
5. Barksdale agreed to help Moronese and subsequently became an active participant in the
embezzlement scheme as did a third teller.
7. The branch’s internal control procedures mandated that two employees be involved in
8. An internal audit eventually uncovered the embezzlement scheme; the audit revealed that
slightly more than $100,000 was missing from the branch’s ATM.
9. Barksdale confessed that she and her two co-workers also embezzled parking meter funds
10. In commenting on the embezzlement scheme, the local district attorney observed, “The case is
yet another example of the importance of not only implementing internal accounting safeguards, but
196 Case 3.4 First Keystone Bank
Instructional Objectives
1. To identify control risks relevant to cash maintained on a client’s premises.
Suggestions for Use
Here’s another case that your students can relate to personally. ATM-related theft is a serious
problem facing both the general public and banks and other financial institutions that operate ATMs.
The first case question asks students to identify internal control procedures for ATM operations.
Suggested Solutions to Case Questions
1. Internal controls for ATM operations is obviously not a topic covered by an undergraduate
auditing text. Nevertheless, given a general understanding of the nature and purpose of internal
controls and their own first-hand experience with ATMs students should be able to identify several
control policies and procedures relevant to ATM operations. Listed next is a sample of both low-
tech and high-tech control policies and procedures for ATMs.
—Use of video surveillance systems.
—Including microchips in ATM cards to make them more difficult to duplicate.
—Use of biometric control systems to permit access to ATMs—such as a fingerprint identification
2. The general conditions or factors that influence the nature, extent, and timing (NET) of audit
procedures applied to a client’s ATM operations are not at all unique. For example, the materiality
of a bank’s ATM operations (relative to its overall operations) is almost certainly the most critical
Case 3.4 First Keystone Bank 197
3. The bulk of the audit procedures applied to a financial institution’s ATM operations will
typically involve internal control tests. As is true with internal controls in other areas, auditors will
focus on two dimensions of the effectiveness of ATM-related internal controls: design effectiveness
and operating effectiveness. Since internal controls for ATM operations are increasingly high-tech,
auditors may very likely require the services of an IT expert in reviewing and documenting the
design effectiveness of ATM-related controls. Once the design effectiveness of those controls have
been assessed, then auditors will go about the task of testing their operating effectiveness.
Listed next is a sample of audit procedures that could be applied to a client’s ATM operations:
—Determining whether the client has properly segregated key functional responsibilities for its ATM
operations, such as, separating custodianship and recordkeeping responsibilities.
Obviously, in the First Keystone case a “surprise” cash count of the ATM funds would have
resulted in discovery of the ongoing embezzlement scheme. It is unlikely that observation of the
ATM-related controls would have uncovered the fraud since the employees, no doubt, would have
made sure that the required controls were operational when they were being observed by the
auditors. It is unlikely as well that the other audit procedures listed above would have uncovered the
fraud.