Question

LO 6-7 6.57 Select Effective Extended Procedures. The following are some "suspicions"; you have 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 sending the deposit to the bank,

Answer 1

Suggested procedures foe each case :

a)

• Recording of exact denomination of petty cash remaining with the custodian at end of the day.It is difficult to the custodian to replace the denomination later. Random checking of register and actual currency should be done in morning.
• Install the cameras in the safe locker room and the access is given only to senior staff rather than the cashier.

b)

• Documents should be checked to confirm whether all the procedures were followed when adding vendors to the approved list .
• Background check to be done to all the vendors for financial viability and reputation in the market.And for the undesired vendors,investigate how these vendors were approved by the responsible persons before removing from the list.
• Check recent orders for all the vendors who were invited to give quotations with the old and trusted list. In case of new vendors , investigate them with respect to prices to over come the billing and other manipulations.

c)

• Paychecks data base is properly maintained .The custody and register should be with two different persons.
• All the non issued paychecks should be collected back and matched with the records.paychecks other than specific time should be cancelled.

d)

• Balance amount to be received from the customers should match the books and any discrepancies should be investigated.
• Receivables should be serially numbered and the supervisor should check them with the actual cash collections.

e)

• Cash collections is recorded with exact denominations of currency.
• The deposit time should be decided by the senior and mostly it is preferable in; the morning time .