Question

The following are some “suspicions”; you have been requested to select some effective extended procedures designed to confirm or deny the suspicions. Required: Write the suggested procedures for each case in definite terms so another person can know what to do. a. The custodian of the petty cash fund may be removing cash on Friday afternoon to pay for weekend activities. b. A manager noticed that eight new vendors were added to the purchasing department’s approved vendor list after the assistant purchasing agent was promoted to chief agent three weeks ago. She suspects all or some of them might be fictitious companies set up by the new chief purchasing agent. c. The payroll supervisor may be stealing unclaimed paychecks of employees who resigned and did not collect their last check. d. Although no customers have complained, cash collections on accounts receivable have decreased and the counter clerks may have stolen customers’ payments. e. The cashier may have “borrowed” cash receipts, covering this by holding each day’s deposit until cash from the next day(s) collection is enough to make up the shortage from an earlier day and then sends the deposit to the bank

Answer 1

Suggested procedures for each of the cases can be:-

a. i) Installation of CCTV cameras in the room where safe locker is placed. Access to the recordings limited to only senior staff and not to persons handling cash in the locker room.

ii)Recording of exact denominations of petty cash remaining with the custodian at the end of each day in a register. It will be very difficult for the custodian to replace the exact denominations later on. Random matching of the register and actual currency should be done in the morning to identify variations.

b. i) Documents should be checked to confirm whether all procedures were followed when adding the new vendors to approved list.

ii) Background check should be undertaken to all the vendors added to confirm their financial viability and reputation in the market. This will weed out undesired vendors. If undesired vendors are identified, then apart from immediate removal from approval list, it should also be investiated how those vendors were approved by the responsible persons.

iii) Recent orders should be checked to see which all vendors were invited to give quotations for the purcahses and whether they include old and trusted vendors. If no old and good vendors are included, then reasons for not inviting them should be investigated and prices should be cross-verified for identifying over-billing and manipulations.

c. i) The database for all the issued paychecks should be thoroughly maintained. The custody fo the paychecks and register should be separated between two persons.

ii) All the non-issued paychecks should be collected back and matched with the records for any missing paychecks. Paychecks older than a specific time should be cancelled.

d. i) Balance confirmations should be received from all the customers, to match balances as per books and balances agreed by customers as being due. Discrepancies should be investigated.

ii) Process for cash receivables should involve issue of receipt which is numbered serially. The book should be checked at the end of each day by the supervisor and matched with actual collections.

e. i) Cash collections at the end of each day should be recorded in a register with exact denominations of currency. It should be cross checked by the supervisor.

ii) The time of sending cash to the bank for depositing should be decided by the senior and should be as near the morning time as possible. Surprise element should be there and cashier should remain unknown about the timings.