Question

Two posts are required to receive full credit for a discussion. First of all you will need to respond to the scenario that is given. You will need to give a complete answer, at least a paragraph, that shows that you have read the scenario and have put some thought into your response. The second required post needs to be at least one reply to a fellow students post. You must post an answer to the question before you can see the posts of other students. This chapter in our textbook discusses FICA taxes. Using the information found in the chapter examine the following situation and answer both questions following the situation (remember the requirements stated above): The owner of a small business has recently discovered, through letters from the IRS, that payroll taxes have not been paid in a couple of years. Upon investigation from an outside accountant, it was discovered that the internal accountant responsible for payroll and payroll taxes did not perform their job. The internal accountant wrote checks with the correct amount due to the IRS, but put his own name on the checks so he could cash them. The employee covered their embezzlement by stating that the checks were written to the IRS in the books of the business. What could have been done to prevent this? Who do you think will be held responsible by the IRS?

Answer 1

Answer to the first issue of the question is to prevent cash embezzlement in business by employee as follows:

1. On a daily basis, cash receipts recorded to the general ledger are agreed to bank deposit slips by accounting personnel. Discrepancies are investigated and resolved.
2. Accounts personnel record bank account transactions to the general ledger on a daily basis; Accounts Manager (Management) reviews recorded transactions and cash position regularly for unusual activity and investigates and resolves issues on a timely basis.
3. Bank statements are reconciled to the general ledger regularly and differences are investigated and resolved on a timely basis.
4. New bank accounts are only opened through the direction and approval of Board of Directors. When new bank accounts are approved and opened, finance personnel create the general ledger account and prepare the journal entry to record the initial balance in the account. Management reviews and approves the new general ledger account and journal entry, including supporting documentation, before the journal entry is recorded.
5. A 3-way match process is performed for fixed assets purchases that utilise the purchase order, receiving document, and vendor invoice. Once the 3-way match process is performed and the key terms of the purchase are agreed to supporting documentation, a transaction is posted in the fixed assets sub-ledger and general ledger to record the addition.
6. Cash/bank payments are generated through the system. The system automatically records the journal entry for cash/bank payments to the trade payables and cash/bank sub-ledgers.
7. All manually generated cheques, including supporting documentation and the related journal entry, are reviewed and approved by finance manager before the journal entry is recorded.
8. Cash/bank balance foreign currency translations are prepared by finance personnel and reviewed and approved by finance manager, who also reviews supporting documentation for the translation rate calculation.
9. System calculates the cash/bank balance foreign currency translation rate, which is independently verified by finance manager.
10. Daily bank deposits are made for additional cash on hand (i.e., cash on hand that exceeds the pre-determined limit).

Who do you think will be held responsible by the IRS?

Company is responsible for the same because if company had implemented proper control and checks than this situation could not arise.

Thank you..