Review the following internal control case and answer the 3 areas at the bottom.

Case #2 - Office Manager

• There were 4 bank accounts: an operating account, a payroll account, a closure account, and a petty cash account. The first three accounts were at bank A and the petty cash account was at bank B.

• The petty cash account had the office manager and the treasurer as the signatories on the account.

• The treasurer died. The new treasurer was unaware of the petty cash account at bank B.

• The office manager used the account at bank B to write checks to herself or to petty cash as a means of transferring funds for her personal use.

• Due to a computer conversion, the office manager had problems transferring data and providing monthly financial reports. She was authorized to take the computer home to work on the transfer of data. Due to an illness and hospital stay, there were further delays in getting the new billing system up and running.

• Complaints from a vendor about payment problems led to the board's investigation. These were thought to be due to her illness.However, failure to respond to requests for information led to an examination of the office files and retrieval of the computer and checkbooks from her home.

• Once the board members had access to the bank statements from bank B, the embezzlement became apparent.

• Funds had been deposited into bank B instead of bank A and then checks were written to her or payable to cash and signed by her.

• The embezzlement totaled approximately $42,000.

RED FLAGS:

INTERNAL CONTROL WEAKNESSES:

RECOMMNENDED CONTROL PROCEDURES: