Question

Dr. Heather Thomas owns her own practice and employs two office employees Andy & Eve. Andy is responsible for Accounts Receivable and Eve is responsible for Accounts Payable. Andy opens the mail, lists the checks received and posts the payment to the customer's accounts receivable. He also takes cash from patients at the cashier window as the patients leave. He puts the cash in the top desk drawer and doesn't take the time to give patients a receipt for the cash paid on their accounts when the office is busy. When the office is slow, Andy offers to help Eve prepare checks for vendor payment. Andy is also doing the monthly bank reconciliation. He hasn't taken a vacation in the last three years.

Instructions:

List five different internal control procedures violated in this medical office situation. List the procedure and explain how that procedure is violated in this situation.

Procedure:                                                                 Violation:

1.

2.

3.

4.

5.

Answer 1

  

sno	Procedure	Violation
1	Andy is handling accounts receivable and also maintaing cash window	Person having physical custody of assets must not be permitted to have access to the books of accounts.
2	Andy has not taken vacation in last three years.	SInce Andy has not taken leave from a while this increases the chance of fraud by staff member. Every member should be ecouraged to go on leave atleast in once in an year
3	Andy puts the cash in the top desk drawer and doesn't take the time to give patients a receipt for the cash paid on their accounts when the office is busy	Likelyhood of theft and embezzlement, to prevent loss or misappropriation of cash mechanical devices should be deployed like electronic cash register and electronic copy of receipts.
4	Andy helps eve to check venodor payment	This should not be allowed because the financial and administrative powers shoudl be disctributed very judiciaously among the different members and the manner in which these are actually exercised should be reviewed periodically.
5	Andy is responsible for Accounts Receivable and he also takes cash from patients at the cashier window as the patients leave.	No single person shoud have and indepedent control over any important aspect of business. seggregation of incompatible functions as maintaing cash balance and handling accounts is considered to be incompatible function. no single person should be given the responsibility of handling these two functions.