Harriet Knox, Ralph Patton, and Marcia Diamond work for a family physician, Dr. Gwen Conrad, who in private practice. Dr. Conrad is knowledgeable amount office management practices and has segregated the cash receipt duties as follows. Knox opens the mail and prepares a triplicate list of money received. She sends one copy of the list to Patton, the cashier, who deposits the receipts daily in the bank. Diamond, the record keeper, receives a copy of the list and posts payment’s accounts. About once a month the office clerks have an expensive lunch they pay for as follows. First, Patton endorses a patient’s check in Dr. Conrad’s name and cashes it at the bank. Knox then destroys the remittance advice accompanying the check. Finally, Diamond posts payment to the customer’s account as a miscellaneous credit. The three justify their actions by their relatively low pay and knowledge that Dr. Conrad will likely never miss the money.
Required
- Who is the best person in Dr. Conrad’s office to reconcile the bank statement?
- Would a bank reconciliation uncover this office fraud?
- What are some procedures to detect this type of fraud?
- Suggest additional internal controls that Dr. Conrad could implement.
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Financial and Managerial Accounting: Information for Decisions
- Your small business client, Phillip’s Computer Repair Shop, is experiencing financial difficulties and has to lay off one of its four employees in the accounting area. Phillip has asked you to determine what duties should be assigned to the three remaining employees—Abigail, Bryan, and Chris—to maintain the best separation of duties.Required:Assign the following 10 duties to each of the three employees.a. Reconcile bank statement.b. Open mail and list checks.c. Prepare checks for Phillip’s signature.d. Prepare payroll checks.e. Maintain personnel records.f. Prepare deposit and take to bank.g. Maintain petty cash.h. Maintain accounts receivable records.i. Maintain general ledger.j. Reconcile accounts receivable records to general ledger account.arrow_forwardSuperior Cabinets maintains a petty cash fund for minor business expenditures. The petty cashcustodian, Mo Smith, describes the events that occurred during the last two months:a. I established the fund by cashing a Superior Cabinets’ check for $300 made payable to me.b. Liz Clay provided a receipt for $50 for various supplies. I paid $50 cash to her.c. James Flyer provided a $70 taxi receipt, so I paid $70 cash to him.d. Ricky Ricota claimed to do photocopying for Superior Cabinets at The UPS Store for $97 buthad misplaced the receipt. I took him at his word and paid $97 cash to him.e. On the last day of the month, I prepared a summary of expenditures and requested the fund bereplenished. I received and cashed a Superior Cabinets’ check for $217, placing the cash intothe locked cash box.f. James Flyer provided receipts for taxi costs ($75), so I paid $75 cash to him.g. Woo Riun provided a $147 receipt from a local delivery company for an expedited delivery toa customer. I paid her $147…arrow_forwardConsider the following independent situations:1. John Smith is the petty-cash custodian. John approves all requests for payment out of the $200 fund, which is replenished at the end of each month. At the end of each month, John submits a list of all accounts and amounts to be charged, and a check is written to him for the total amount. John is the only person ever to tally the fund.2. All of the company’s cash disbursements are made by check. Each check must be supported by an approved voucher, which is in turn supported by the appropriate invoice and, for purchases, a receiving document. The vouchers are approved by Dean Leiser, the chief accountant, after reviewing the supporting documentation. Betty Hanson prepares the checks for Leiser’s signature. Leiser also maintains the company’s check register (the cash disbursements journal) and reconciles the bank account at the end of each month.3. Fran Jones opens the company’s mail and lists all checks and cash received from customers. A…arrow_forward
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- The following procedures were recently implemented by SUP Yoga Co.: Each cashier is assigned a separate cash register drawer to which no other cashier has access. All sales are rung up on the cash register, and a receipt is given to the customer. All sales are recorded on a record locked inside the cash register. At the end of a shift, each cashier counts the cash in his or her cash register, unlocks the cash register record, and compares the amount of cash with the amount on the record to determine cash shortages and overages. Checks received through the mail are given daily to the accounts receivable clerk for recording collections on account and for depositing in the bank. Vouchers and all supporting documents are stamped PAID after being paid by the treasurer. Disbursements are made from the petty cash fund only after a petty cash receipt has been completed and signed by the payee. The bank reconciliation is prepared by the accountant. Instructions: Indicate whether each of the…arrow_forwardAppliances 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. Cash is deposited daily. Gyders. uses the listing to enter the financial transactions in the franklyn computerized accounting records. He also contacts customers about uncollected accounts receivable. Because he is so knowledgeable about the business and each customer, he grants 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 Gydes has committed a major theft of the company’s cash receipts. He did so by not recording sales,…arrow_forwardThe smallest branch of Super Fresh Cosmetics in Iloilo City employs Mary Santos, the branch manager, and her sales assistant, Jane Reyes. The branch uses as bank account in Iloilo City to pay expenses. The account is kept in the name of "Super Fresh Cosmetics Special Account". To pay expenses, checks must be signed by Mary Santos or by the treasurer of Super Fresh Cosmetics, Juan Dy. Mary receives the cancelled checks and bank statements. She reconciles the branch account herself and files cancelled checks and bank statements in her records. She also periodically prepares reports of cash disbursements and sends them to the home office. a. What are the control weaknesses you noted? b. What are the possible risks that can happen due to the said control weaknesses?arrow_forward
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