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Electronic Surveillance of Employees

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Internal Control – Letter to Jerry Mays
ACC557: Financial Accounting

Date: May 7, 2011
Jerry Mays
Owner
Manhattan Company
25 W 39th Street
New York, NY
10018
Dear Mr. Mays: Thank you for being such a great host last week while I was auditing your internal controls related to mail cash receipts. It was a pleasure meeting your entire staff and I am extremely grateful that you freed up your employees during my visit so that I could sit down with them and get a better understanding of your current process.
After spending last week reviewing your processes, I would like to identify some weaknesses I found in your internal control processes, as well as recommend some changes that I feel could help strengthen and secure these processes. However, I first want to commend you on having a process in place to promptly endorse all incoming cash receipts with “For Deposit Only” stamp. This internal control helps to ensure that the funds must be deposited into the company’s bank account.
The first weakness I found was that the person opening the mail does not prepare a list of the incoming checks. It is very important to have documentation procedures in place so that you can track the checks at any time. My recommendation would be to utilize a simple cash receipts schedule like the one below, so that you can record each payment as it is opened and stamped for deposit.

Croix, Marais, and Kale - CPA's | | | | | Cash Receipts | | | | | | 5/7/11 | | | | | | | Date | Received From | Description | Invoice Number | Amount | Form of Payment | Input Initials | 5/7/11 | John Jones | Fee for Services | 0001 | $300.00 | Check | JRM | 5/7/11 | John Brown | Fee for Services | 0002 | $450.00 | Check | JRM |
This document will provide evidence that the transactions have occurred, provide a reference if a discrepancy is found, identify which staff member opened each cash receipt, and finally, describe who made the payment, and for what purpose. It will also tie the payment to your internal invoice number. It is also important to note that you continue to provide two employees with this responsibility and never charge just one person with this task.
A second weakness I uncovered deals with the segregation of duties. It appears as though a cashier and an employee who maintains the accounts receivable accounts are responsible for also opening up the mail cash receipts. It is not advisable to allow employees who are custodians of the mail cash receipts to also have access to the accounting records of said receipts. I would recommend that you find two other employees who have no access to the accounting records or the physical assets to begin processing the cash mail receipts.
A third weakness focuses on the cashier deposits. I noticed during my visit last week that the cashier only made one deposit the entire week. It is important to make daily deposits for two specific reasons. First, it will allow your organization to begin gaining interest on the deposit in a timelier manner, and secondly, it will give your staff the ability to uncover errors or irregularities more swiftly. This process will also lower the amount of mail cash receipts that you have on hand at any given point.
Now that I have outlined some major steps to take in order to ensure healthier internal cash controls, I want to add a few extra steps into the processes to ensure you are adequately covered. 1. When your employees finish adding up the day’s cash receipt totals, have them place one part of a duplicate adding machine tape into the deposit bag and file the other part for safe keeping. Once they fill out a deposit slip, have them initial it, then have them place the checks into a safe or other locked enclosure. 2. Have a third person verify the cash receipt totals by matching the checks to the register receipt and placing a second set of initials on the bank deposit slip. 3. Ensure that a daily deposit is made at the bank and that a bank receipt is retained in the bank bag showing the total amount of money deposited. 4. Once back in the office, have someone verify that the amount on the bank receipt matches the adding machine tape that has already been filed. Once the balances are confirmed, attach the bank receipt to the adding machine tape and file away. These will be retained so that they can be used when reconciling the bank statement.
Lastly, I have a few final recommendations concerning your employees that you may want to take. It would not be a bad idea to make sure that all of the employees you designate to handle cash be bonded. This will protect you in case there is a loss. Secondly, conduct thorough background checks. Make sure all information they have provided is correct and also do a credit check. Those who are in very dire financial situations are more likely to commit embezzlement.

Finally, you should cross-train your employees and move them around from time to time to ensure no one gets “too comfortable” in their position. By switching out duties among several employees, you increase the likelihood of catching someone who is committing fraud by manipulating the system you have in place.
Sincerely,

Auditor
Croix, Marais, and Kale

References

Gray, J. J. (2009, September 29). Hernandez v. Hillsides: Narrowing Workplace Privacy in California . Retrieved July 16, 2010, from ArticlesBase: http://www.articlesbase.com/law-articles/hernandez-v-hillsides-narrowing-workplace-privacy-in-california-1283905.html
Halbert, T., & Ingulli, E. (2010). Law and Ethics in the Business Environment. Mason, OH, United States of America: Centage Learning.
Harvard Law School. (2009, January 15). Privacy in the Workplace. Retrieved July 16, 2010, from Berkman Center for Internet & Society: http://cyber.law.harvard.edu/privacy/module3.html

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