Prompt

Isobel is a real estate agent and owns her own real estate and property management firm. She employs five full-time agents as well as a full-time office manager, Jerry, who also serves as the firms accountant. The five agents are on a weekly rotation as the on-call agent for the property management responsibilities and ensuring that any necessary maintenance and repairs are made during their turn. All of the agents are paid a base salary plus a small commission on any real estate sales they make. Also, each agent is allotted a bonus when signing on a new property management client. The bonus is equal to the clients initial deposit due upon signing the contract, so Isobel allows the agents to just take the original payment as their bonus, having the client make payment directly to the agent instead of the firm. Isobel thinks this form of direct payment is easiest and results in less paperwork for Jerry, who often stays late and comes in on the weekends to work on bookkeeping or inventory tasks so that Isobel doesnt have to worry about any of it. Additionally, to simplify bookkeeping each agent and Jerry have been issued a company credit card to use for supplies, gas, or incidental purchases they need to make for work, or to pay for any expenses related to property management for cleaning or repairs. Company policy for credit card usage is that a receipt be turned in to Jerry for any purchase over $100 or for any maintenance or repair on a property so that Jerry can bill the appropriate client. Recently, Isobel has received some overdraft notices from the bank and is concerned that Jerry might be making some mistakes in his account management. Isobel thinks he might need a rest since he hasnt taken a vacation in the entire four years he has worked for her and plans to encourage him to take a short vacation.

Referencing the above scenario, write one to two paragraphs to provide a rationale for the following:

Identify three different principles of internal control that are violated by the actions of Isobels real estate firm.

Describe how the firms actions create three violations of principle.

Describe an appropriate action or procedure to correct the three noted violations of principle and strengthen internal controls.