Appliances Repair and Service Company bills all customers rather than collecting in cash when services are provided. All mail is opened by Tom Gyders, treasurer. Gyders, a CPA, is the most qualified person in the company who is in the office daily. Therefore, he can solve problems and respond to customers’ needs quickly.

Cash is deposited daily. Gyders. uses the listing to enter the financial transactions in the franklyn computerized accounting records. He also contacts customers about uncollected accounts receivable. Because he is so knowledgeable about the business and each customer, he grants credit, authorizes all sales allowances, and charges off uncollectible accounts. The owner is extremely pleased with the efficiency of the company. He can run the business without spending much time there because of Gyders’ effectiveness.

Imagine the owner’s surprise when he discovers that Gydes has committed a major theft of the company’s cash receipts. He did so by not recording sales, recording improper credits to recorded accounts receivable, and overstating receivables.

REQUIRED:

1. Given that cash was prelisted, went only to the treasurer, and was deposited daily, what internal control deficiency permitted the fraud?

2. What are the benefits of a prelisting of cash? Who should prepare the prelisting and what duties should that person not perform?

3. Assume that an appropriate person, as discussed in part b, prepares a prelisting of cash. What is to prevent that person from taking the cash after it is prelisted but before it is deposited?

4. Who should deposit the cash, given your answer to part b?