QUESTION

Subject Code    ACC 303
Subject Name    Forensic Accounting

Assessment Type    Individual Assignment

Due Date     Friday of Week 7
4
th
May 2012 (Friday)

Weight     25% of the total assessment

Word limit     2,000 – 2,500 words

The assignment must be typed, and you must attach a cover sheet duly signed and
dated. The assignment must be prepared in a an essay format.

Students are reminded to follow the Plagiarism Guidelines, and any suspicious
assignments would be further investigated.

The lecturer will discuss the plagiarism guidelines during the semester. If the
students need any assistance with regards to referencing, or understanding
plagiarism, they should contact the lecturer directly.

Any queries regarding this assessment task should be directed towards your lecturer.

REQUIRED

 From the following scenario, you are required to identify assertions at risk,
choose appropriate evidence(s) and write a detailed audit procedure. (15
marks).

 What improvements would you suggest to the existing cash receipt
procedure? (10 marks).

Page 1 of 2

Notes to Cash Receipts Procedures

Customer collections are usually made by cheque and received in the mail.
Occasionally customers pay the sales staff personally when they are making monthly
calls. These customers see the sales staff as the face of the company, and prefer
paying face to face, rather than through the mail.

Mailed receipts are opened by Garry Stafford. The tear-off remittance advices from
the original invoice and the cheques are sent to Li Wong who prepares the ‘cheques
received list’. He makes two copies of the list. The o riginal is sent with the cheques
to Barry Seymour, the second copy is sent to Mary Bayes, and the final copy and the
remittance advices are kept by Li Wong to update the trade receivables subsidiary
ledger and are then filed. Barry Seymour prepares the deposit form (which has three
copies) from the list and records the total in the cash receipts journal. He then files
his copy of the list, and takes the cheques and two copies of the deposit form to
Jeremy Mooney. The final copy of the deposit form is sent to Mary Bayes with a
reconciliation form.

The sales staff keeps a running list of cash received from customers, and at the end
of their tour passes the list and collected amounts on to Chris O’Brien. Chris totals all
the receipts, sends a copy to Mary Bayes with supporting copies of the sales staff
lists, the original to Jeremy Mooney along with the collections, and a final copy with
remittance advices to Li Wong for updating the subsidiary ledger. Mary Bayes then
ensures that the total of the ‘ cheques rec eived list’ equals the sub-total of the copy
of the deposit form, as well as the total posted to the cash receipts journal. She
checks and adds the cash collected by the sales staff as advised by Chris O’Brien,
initials the reconciliation form and files it.

Jeremy Mooney makes the deposit at the local branch of the bank during his lunch
break. One copy of the deposit slip is retained by the bank, and the other is stamped
as deposited by the bank. He retains this copy, which is used for agreeing the
deposits made when performing the monthly bank reconciliation.

SOLUTION

1. Introduction

The paper describes the process of cash collection followed by a firm, the paper in detail describes the process of cash collection and the final updating the in the ledgers and accounts. The aim of the paper is to evaluate the internal audit process and identify the existence of the assertions to the risk in the process. Moreover the paper also describes the present efficiency in the cash collections process as well as makes recommendations to improve the process of cash collections.

As most of the customers of the corporations prefer making the payment face to face it is important to develop an efficient procedure to enable the same. The possible alternatives have also been considered in the paper.

2. The Process of Cash Collection

In the above case the cash conversion cycle of a small firm is effectively presented, The Customer collections are made and are received in cheque by the corporation. However some customers prefer to pay face to face after seeing the employees of the firm. The cash collection process undergoes fair number of employees who record each transaction at the required level and then further pass on the information to the next level. Thus, even though the cash collection procedure may be efficient the time gaps and lags are introduced in the corporation by a multilevel and inter departmental processing and recording of the financial information. The following risks have been identified with the cash collections procedure.

2.1 The Effective management of Cash Conversion Cycle

The effective conversion of sales to cash is critical for the firm, the firm should effectively minimise the time of converting the sales to cash. The main problem of the firm under study is the speedy conversion of sales to cash as there are large number of intermediaries involved. The paper studies the cash conversion cycle of a small firm, the Cash Conversion Cycle (CCC) of a firm can be defined as the comprehensive measure of the working capital of the firm as it shows the time gap between the actual expenditure of the purchases and the collections of cash made by the final sales of goods and services. The day to day management of the cash plays an important role in the management of the firm and is also crucial to the success of the firm. It is the key to effective liquidity management of the firm (Uyar, 2009).

Figure 1: Cash Conversion Cycle (CCC) (Source: Jordon, 2006 and Uyar 2009)

Steps should be undertaken by the organization to minimise the delay in the cash collection process. Speeding up the collection process thereby introducing efficiency in the system is important for the firm, the collection process can be speeded up by providing incentives to customers like discounts, rebates etc. In the case preference discount can be given to those customers who make the payments by cheque in mail. This would enable the cash reaching the firm directly minimising the time needed by the employees to make the collection personally and would enable direct accounting of the transaction.

2.2 Occurrence of Cash Frauds and Un-Accounting of Transactions

The current cash collection process has the presence of some inherent weaknesses one of them being the system allowing the un-accounting of certain accounting transactions. Let us consider an example from the where the employee made the payment during the lunch break of the bank there is a chance that the transaction may not be actually recorded in the books of the firm. This may lead to in consistencies in the accounting process which may lead to problems in over or understating the revenues as well as the profits of the firm. Thus, leading to the additional problems of auditing, Theft and cheating of customers by the employees is also another possible problem for the firm. Cash theft is possible when making the monthly calls the employees may ask the customers to make payments to other accounts or may levy some other charges on the customers. This bad situation for the firm and its customers, the organization loses credibility in the eyes of the customers, as well as loses the money from the sales as the cash has been transferred to different accounts. Thus firm should set up a controlled accountable environment to minimise the risk from the fraudulent activities. To avoid such a situation strong internal control measures have to be in place, the organization should be able to effectively implement the control mechanisms throughout the organization to main both quality and control (Finlay, 2009). Let us consider an example in this case suppose one employee opens a account for all the receipts of the firm, the 2^nd employee then undertakes the accounting and records all the transactions in the system of the firm and finally the third employee takes all the funds to the bank. This however is just an example to assign clear roles and responsibilities to specific employees to maintain control and transparency in the organization. The assignment of clear roles and responsibilities enables the smooth functioning of the organization and as well as helps in maintaining an effective internal control and audit system (Finlay, 2009).

2.3 Presence of Intermediaries

The main weakness of the current audit system in place is that there are a large number of employees involved in the recording and accounting for the cash receipts of the organization. Such a system leads to loss of efficiency has the job is delayed because of communicating the same information at the different levels in the organization. It has also led to the problem of over lapping of roles and duties, the same job can be done by one person effectively and efficiently rather than constant changing hands of the cheques as well as the information. In such a system it is difficult to maintain effective control on the employees. Even though the system is a clear approach of people with defined roles and responsibilities the time and the efficiency loss cannot be understated owning to the constant involvement of the employees of different levels of the organization or different employees in the same organization. The resigning of the internal audit mechanism of the firm is required to avoid this risk. The risk however cannot be easily identified therefore the firm should continuously update and evaluate its internal systems to gain organizational efficiency.

Thus the weaknesses of the current system are quite evident, the firm needs to re-design and revalue the system to gain more efficiency in the operations of the firm. Let us first undertake the study of the current audit system, and then make the recommendations for the improvement of the current system.

3. The Current Audit System

Let us undertake the study of the current audit system as follows; the diagram illustrated below shows the entire procedure of cash collection in the organization.

Figure 2: Audit Procedure When the Cheques is received in mail by the Organization.

The current audit procedure when the cheques are received in mail by the organization is quite evident from the above chart. The cheques are first received by Mr Gary Stafford who the passes on the all the cheques and the receipts to Li Wong. Li Wong then prepares two copies of the cash receipts list and passes on one copy each to Mary Bayens and Bary Seymour. Li Wong also records all the transactions in the cash journals.  After the recording of the financial information the cheques are passed on further to Jermey Mooney who receives a final copy of the list and the cheques. He then passes on the cheques again for reconciliation to Mary Bayens.

Many of the customers of the firm have had a preference to make direct payments on a face to face basis to the employees of the firm. Thus, the sales staffs has to constantly update the customer lists from time to time as well as follows the current system which is in place for such payment receipts.

Figure 2: When the cheques are collected by the staff of the organization.

When the cheques are collected in person by the organization a simpler procedure is adopted , the sales staff passes on all the receipts to Chirs O Brien , who then passes on the information to Mary Baynes , who prepares 2 copies of the list and sends one to Li Wong to record in the cash receipts journal and the Jeremy Mooney.

Thus, the current audit system for the receipts of collected by the sales staff is relatively easier and more convenient .It does not involve a large number of persons or departments , Using this system the cash conversion cycle or the CCC has be speeded up considerably. There is less loss of efficiency in the process in comparison to the mailed cheques as the payments are cleared within the four steps. However a more efficient system has been adopted to introduce greater efficiency in the business. The procedure also can considerably reduce the fraudulent practices as the payment is directly collected by the company; therefore there is a minimization of risk loss of cheques in post. Thus more efficient audit procedures should be adopted to introduce accounting efficiency in the business.

4. Recommendations

Studying and analysing the current system of the cash receipts to the organizations the weaknesses and the risks have already been identified in the above discussion. Based on the identification of these risks and with the aim to introduce greater efficiency in the business, thus the following recommendations have been made.

1. Elimination of the Intermediaries

There is an existence of a large number of intermediaries especially in the case of receipts of payments by the cheques. The process can be minimised and time efficiency can be introduced in the system, if the number of channels is minimised. This can be done by allocating 2 jobs to the same person, or the same person making the approvals at once only. For example, Li Wong can undertake the job of recording the transactions in the cash journals as he is already doing so instead of the job being repeated by Bary again, this would minimise the change and introduce some efficiency in the system. The control environment sets the quality for the business. It provides a structured framework within which the organization functions. The environmental discipline affects the working of the employees in the organization. A structured control environment has to be maintained with the employees of the organization, roles and responsibilities of each of the individual need to be defined clearly.

2. Need of an Integrated System

An automated accounting system is highly recommended for the organization as this would greatly minimise the time taken in the recorded and reporting of the financial transactions. Moreover only a few employees can undertake the job and the system would be easily accessible to all the employees of the organization. Therefor efficiency in both of time and money can also introduce. Thus the system would integrate the organization as a single unit.

3. Undertaking Control Activities

The control activities are those which ensure the effective implementation of the organizational control mechanism strategy. In this the corporation has to ensure that the control activities are efficiently executed been certain strategic changes in the business operations have been undertaken by the organization are Approval, Authorization and Verification.

1. Authorization, Approval and Verification – Authorization is the effective delegation of responsibility to a particular group of people in the organization to enable effective decision making. In the above the branch managers are being authorised to make effective decision on the purchase of materials. While delegated authority to the mangers to enable them to undertake the decision making process certain quality control measures should also be placed so that the goods that are bought are of high quality and ensure efficiency in the organization and not financial fraud. The employees collecting the payments should be given identifications so that the customers are not misled.

2. Separation of Duties – The separation of duties and responsibilities enable the formation of an effective top- down communication. It enables the mangers to clearly identify their roles and responsibilities. This also helps in the creation of accountability in the organization. In the case of firm the managers have been given the additional responsibilities to collect the payments directly from the customers. The quality control measures as it has resulted in the overlapping of duties and wastage of time in clearing one transaction. This is a clear reflection that the managers have not identified the duties and the responsibility that have been entrusted upon them. The managers have failed to make sound decision, and this a result of weak control mechanisms and activities developed by the organization.

3.Monitoring – The monitoring activities include the activities of the management of the financial resources and evaluating the financial decisions .The Cash collection cycle has to monitored by the organization from time to changes .Changes in the organizational structure and the payment collection cycle are essential to maximise efficiency and decision making in the organization. Moreover it is essential to adopt technology and change to provide convince and ease to customers.

(Ratcliffe et al, 2009, Ucop.edu- accessed on 22/05/2012 and yale.edu – accessed on -22/05/2012)

4. Introduction of Online Payment

As the organization develops and integrated an automated system, it would be easier for the organization to provide the mode of online payment to customers. In this manner the payment would be directly credited to the firm’s account eliminating any intermediaries as well as the clearing mechanisms. It would also save the human resource involved in the process as they would not be required to collect payments directly from customers, they resources can be used elsewhere to introduce greater organizational efficiency. The online payment system would have to be highly secured, and provide a safe basis to the customer’s organization to make the payment. In the age of globalization and the integration of the world economies, with the expansion of the business to different areas , online payment would make it easier for the organization to reach a vast variety of customer groups which have not been earlier accessed.

5. Conclusion

Thus the weaknesses of the current system are quite evident, the firm needs to re-design and revalue the system to gain more efficiency in the operations of the firm. Let us first undertake the study of the current audit system, and then make the recommendations for the improvement of the current system. The firms have to evaluate their internal systems to gain organizational efficiency for the business. The recommendations made above are particularly necessary for the firm as they would enable the firm to gain efficiency and minimise the error in the accounting g process and maintaining an effective control mechanism. The adoption of the technology is essential for the firm , to change with the changing times as this would also enable effective e communication within the organization and the information would have to be passed on manually , it can be easily accessed and processed by the employees using the integrated system.

6. References

• Uyar, Ali . “The Relationship of Cash Conversion Cycle with Firm Size and Profitability: An Empirical Investigation in Turkey.” EuroJournals publishing 2887.4 (2009): 1-8. Print.
• Finlay, James . “How Cash may be stolen .” http://nonprofitrisk.imaginecanada.ca 1.1 (2009): 1-9. Print.
• Ractcliffe, Thomas, and Charles Landes. “Understanding Internal control and Internal control Services.” Journal of Media Accountancy 1.1 (2009): 1-12. Print.
• Ucop, Education. “Understanding Internal Controls.” Ucop education 1.1 (2012): 1-21. Print.
• Yale , University. “Internal Control Framework.” Yale University Guides 1.1 (2000): 1-5. Print.

LE07

But you can order it from our service and receive complete high-quality custom paper.  Our service offers Accounting  essay sample that was written by professional writer. If you like one, you have an opportunity to buy a similar paper. Any of the academic papers will be written from scratch, according to all customers’ specifications, expectations and highest standards.”