Appliances Repair and Service Company bills allcustomers rather than collecting in cash when services are provided. All mail is opened byTom Gyders, treasurer. Gyders, a CPA, is the most qualified person in the company who is inthe office daily. Therefore, he can solve problems and respond to customers’ needs quickly.Upon receipt of cash, he immediately prepares a listing of the cash and a duplicate depositslip. Cash is deposited daily. Gyders uses the listing to enter the financial transactions in thecomputerized accounting records. He also contacts customers about uncollected accountsreceivable. Because he is so knowledgeable about the business and each customer, he grantscredit, authorizes all sales allowances, and charges off uncollectible accounts. The owneris extremely pleased with the efficiency of the company. He can run the business withoutspending much time there because of Gyders’ effectiveness.Imagine the owner’s surprise when he discovers that Gyders has committed a majortheft of the company’s cash receipts. He did so by not recording sales, recording impropercredits to recorded accounts receivable, and overstating receivables.a. Given that cash was prelisted, went only to the treasurer, and was deposited daily,what internal control deficiency permitted the fraud?b. What are the benefits of a prelisting of cash? Who should prepare the prelisting andwhat duties should that person not perform?c. Assume that an appropriate person, as discussed in part b., prepares a prelisting ofcash. What is to prevent that person from taking the cash after it is prelisted butbefore it is deposited?d. Who should deposit the cash, given your answer to part b.?
Appliances Repair and Service Company bills all
customers rather than collecting in cash when services are provided. All mail is opened by
Tom Gyders, treasurer. Gyders, a CPA, is the most qualified person in the company who is in
the office daily. Therefore, he can solve problems and respond to customers’ needs quickly.
Upon receipt of cash, he immediately prepares a listing of the cash and a duplicate deposit
slip. Cash is deposited daily. Gyders uses the listing to enter the financial transactions in the
computerized accounting records. He also contacts customers about uncollected
receivable
credit, authorizes all sales allowances, and charges off uncollectible accounts. The owner
is extremely pleased with the efficiency of the company. He can run the business without
spending much time there because of Gyders’ effectiveness.
Imagine the owner’s surprise when he discovers that Gyders has committed a major
theft of the company’s cash receipts. He did so by not recording sales, recording improper
credits to recorded accounts receivable, and overstating receivables.
a. Given that cash was prelisted, went only to the treasurer, and was deposited daily,
what internal control deficiency permitted the fraud?
b. What are the benefits of a prelisting of cash? Who should prepare the prelisting and
what duties should that person not perform?
c. Assume that an appropriate person, as discussed in part b., prepares a prelisting of
cash. What is to prevent that person from taking the cash after it is prelisted but
before it is deposited?
d. Who should deposit the cash, given your answer to part b.?
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