BTN 6-3 Harriet Knox, Ralph Patton, and Marcia Diamond work for a family physician, Dr. Gwen Conrad, who is in private practice. Dr. Conrad is knowledgeable about 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 recordkeeper, receives a copy of the list and posts payments to patients’ 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.
2. Would a bank reconciliation uncover this office fraud?
No, the Bank reconciliation statement cannot uncover the office fraud.
Corporate fraud: Corporate fraud alludes to illegal operations embraced by an individual or organization done in an untrustworthy or unethical way. Frequently, this sort of business fraud is intended to give a benefit to the perpetrating individual or company.
Unfortunately, because of the collusion of the employees, the bank reconciliation won't distinguish this fraud. The cash deposits as per the books will reconcile to the cash deposits as per the bank. If income reconciliation took place with receipt, then there is a chance that fraud will uncover.
An internal control system consists of all policies and procedures used to protect assets, ensure reliable accounting, promote efficient operations, and urge adherence to company policies. Evaluate each of the following statements and indicate which are true and which are false regarding the objectives of an internal control system.
1. Separation of record keeping for assets from the custody over assets is intended to reduce theft and fraud.
Refer to Google’s financial statements in Appendix A. Identify Google’s net earnings (income) for the year ended December 31, 2015. Is its net earnings equal to the change in cash and cash equivalents for the year? Explain the difference between net earnings and the change in cash and cash equivalents
For each of these five separate cases, identify the principle(s) of internal control that is violated. Recommend what the business should do to ensure adherence to principles of internal control.
2. At Tico Company, Julia and Trevor alternate lunch hours. Julia is the petty cash custodian, but if someone needs petty cash when she is at lunch, Trevor fills in as custodian.
A good system of internal control for cash provides adequate procedures for protecting both cash receipts and cash disbursements. Identify each of the following statements as either true or false regarding this protection.
a. A basic guideline for safeguarding cash is that all cash receipts be deposited weekly or monthly.
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