Question

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 receipts 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 accountant, receives a copy of the list and posts payments to patient’s accounts. About once a month the office clerks have an expensive lunch they pay for as follows. First Patten endorses a patient’s check in Dr. Conrad’s name and cashes it at the bank. Know then destroys the remittance advice accompanying the check. Finally, Diamond post payment to the customer’s account as a miscellaneous credit. The three justify their actions by the relatively low pay and knowledge that Dr. Conrad will likely never miss the money.

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 at least two procedures that if used would detect this fraud?

Suggest at least two additional internal controls that Dr.Conrad could implement.

Answer 1

Answer:

• In this scenario RP is the cashier of C who deposits the receipts daily to the bank. So, RP will be the best person to reconcile the bank statement.

• Yes, the bank reconciliation can uncover the fraud. Because the bank reconciliation reconciles Balance as per Cash Book with Balance as per Bank Statement

• Division of responsibility

for the related transaction makes the particular person accountable for the error. And it ensures that, the work done by one person is automatically checked by another.

• The Cash received by mail should be opened by the two people assigned for this task.
• The internal control system regarding the Cash receipt by mail is as follows:

1. Opening of mail
2. Entering the record of mail received in triplicate
3. The first copy is sent to the cashier with money
4. Second copy is sent to the record keeper in accounts section
5. Third copy is kept by the person opening the mail
6. The money is deposited by the cashier to bank
7. And the record is made by the record keeper in accounting records

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