Question

9. Lapping schemes require constant manipulation of the accounts receivable in order to avoid detection.

MULTIPLE CHOICE

True or false

13. True of false?  Checks are likely to be stolen if a single employee is in charge of opening the mail and preparing the deposit.

MULTIPLE CHOICE

True or false

14. Which of the following is the most effective control to prevent accounts receivable skimming?

MULTIPLE CHOICE

		a. Prepare a bank reconciliation.
		b. Provide the customer a receipt.
		c. Separate the functions of the person handling the cash and the person keeping the books.
		d. Safeguard blank checks.

Answer 1

9 ) Answer True

A lapping scheme is an accounting method that involves altering the accounts receivable section of the balance sheet when cash that is intended for the payment of a receivable is stolen.Therefore, it involvesconstant manipulation of the accounts receivable in order to avoid detection.Lapping occurs when an employee steals cash by diverting a payment from one customer, and then hides the theft by diverting cash from another customer to offset the receivable from the first customer.

13) Answer True

Checks are likely to be stolen if a single employee is in charge of opening the mail and preparing the deposit.The employee simply removes the check from the incoming mail and endorses in his name .

14) Answer c. Separate the functions of the person handling the cash and the person keeping the books.

Separation of duties is often described as cornerstone of internal control just because without giving separate charge for each activity to different person, no effective control can be exercised in the company. In order to have an effective internal control, same person should not be assigned the task of handling the work from beginning to end. If this is done, then chance of fraud and errors will be very high as same person can hide the mistakes or frauds committed by him.