EVALUATION OF CONTROLS
Mary Jane Smith has been a highly regarded employee of the Brier Corporation for almost 20 years. Her loyalty to the company is reflected in her dedication to her job as general accounting clerk from which she has not taken a vacation in almost 12 years. Because of her dedication and long tenure, she has acquired many related responsibilities, which has allowed the Brier Corp to reduce its work force through attrition, control salary expenses and become more efficient and competitive. The following describes Mary Jane’s responsibilities.
Mary Jane receives copies of credit sales orders from the sales department. From these documents she accesses the AR subsidiary ledger from her office computer and records the AR. She then records the sale in the sales journal and posts the transactions to the general ledger accounts. Cash receipts in payment of customer accounts receivable come directly to her office. She records the cash receipts in the GL cash and AR accounts and updates the AR subsidiary ledger. She then endorses the checks “for deposit only” and deposits them in the bank at the end of each day.
a. Identify any control problems in the procedures described above.
b. What sorts of fraud are possible in this system?
c. What controls are needed to reduce the risk of fraud?
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