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King and Case
Since soldiers were given nearly a full year’s clothing allowance when they entered military
service, the army carefully reviewed any man who developed a disability shortly after enlistment.
Many unethical men joined the military in order to receive a full year’s clothing allowance and
then faked a major disability. If the disability was determined to be legitimate and the “disability
was the result of no indiscretion on his part,” the soldier was allowed to keep the clothing upon
his termination from service with no deduction taken from his final wage statement (Kautz, Clerk,
23). If, however, the soldier was found to have been of “unworthy character” and the disability
was fraudulent, a deduction was taken from his final payroll payment. This again shows the need
for internal controls in order to reduce fraudulent behavior. The army promoted an “ethical
climate” similar to the “control environment” component of the COSO definition of internal
control (Arens, et.al., 2008).
A final control was required to safeguard military clothing involved soldiers who were “careless
and improvident” and resorted to selling their clothing to earn some extra money. This problem
existed in certain areas where retail clothing stores were not common. In these areas, local
residents were anxious to purchase clothing at prices significantly higher than the army’s internal
cost (Kautz, Clerk, 24). This allowed soldiers to profit on the sale of clothing since the internal
cost was substantially less than the market price to local residents. An internal control to reduce
this opportunity was the “frequent inspection of soldier’s clothing” by the officers of the
company. Soldiers were questioned regularly (clothing audits) if any of their clothing was
missing (Ibid). The concept of “independent reviews and audits” continues to be a major control
activity in modern business operations.
Penalties were very severe if a soldier was convicted of selling clothing. The Act of January 11,
1812 prohibited the purchase of military clothing by any person not serving in active duty. The
punishment included a penalty of three hundred dollars and one year’s imprisonment (Ibid.). This,
however, did not eliminate the black market in military clothing. Penalties for the soldier, under
the 38 th Article of War, also applied if they were found guilty of selling clothing. Section 23 of
the Act of March 3, 1863 authorizes military officers to seize any “clothes, arms, military outfits
and accoutrements” previously issued to soldiers but now in the hands of civilians. A significant
number of internal controls were required to safeguard the army’s clothing inventory.
The next book or journal was called the Order Book that contained all of the general orders
received from regimental headquarters and also any special company orders or assignments. For
example, any soldier taken from the company for special duty elsewhere would appear in the
Order Book. This document was either organized chronologically based on date of the orders or
by type of order. Again, internal controls require that “adequate documents and records” be
maintained on a continuous basis.
The Company Fund Account Book was a cash fund utilized by the unit for the purchase of
necessities that were not furnished by the Army (Kautz, Clerk, 25). It had two sides similar to a
modern general ledger account. On the left or debit side, the sources of company funds were
listed. This side began with the fund’s beginning balance and listed the sources of cash such as
money transferred from the Regimental Fund and funds withdrawn from the company savings
account. This fund also increased as a result of the sale of unused company rations and surplus
vegetables raised in a company garden if the company was stationed in a single location for an
extended period. Cash expenditures were recorded on the right or credit side and were typically
for products not normally provided by the army such as fresh vegetables, brooms, carpenter’s
tools, and food condiments. This book was an important record for the company and served as a
control over cash similar to a petty cash fund utilized by businesses today.
ASBBS E-Journal, Volume 4, No.1, 2008 79