Page 173 - Accounting Information Systems

144 PART I Overview of Accounting Information Systems

manager explained that some of the investments are for program. Jones receives requests for aid from stu-
such short periods of time that the broker does not dents, determines whether the students meet the aid
always provide formal documentation. criteria, authorizes aid payments, notifies the appli-
cants that their request has been either approved or
Accounting Records
denied, writes the financial aid checks on the account
The accounting department records deposits of checks
he controls, and requires that the students come to his
for interest and dividends earned on investments, but
office to receive the checks in person. For years,
these checks could not be traced to the cash receipts
Jones has used his position of authority to perpetrate
journal, which is maintained by the individual who nor-
the following fraud.
mally opens, stamps, and logs incoming checks. These
Jones encourages students who clearly will not qual-
amounts are journalized monthly in an account for
ify to apply for financial aid. Although the students do
investment revenue. The treasurer authorizes checks
not expect aid, they apply on the off chance that it will
drawn for investment purchases. Both the treasurer and
be awarded. Jones modifies the financial information in
the president must sign checks in excess of $15,000.
the students’ applications so that it falls within the
When securities are sold, the broker deposits the pro-
established guidelines for aid. He then approves aid and
ceeds directly in Oakdale’s bank account by an elec-
writes aid checks payable to the students. The students,
tronic funds transfer.
however, are informed that aid was denied. Because the
Each month, the accounting manager and the trea-
students expect no aid, the checks in Jones’s office are
surer prepare the journal entries required to adjust the
never collected. Jones forges the students’ signatures
short-term investment account. There was insufficient
and cashes the checks.
backup documentation attached to the journal entries
reviewed to trace all transactions; however, the balance
in the account at the end of last month closely approxi- Required
Identify the internal control procedures (classified per
mates the amount shown on the statement received
SAS 78/COSO) that could prevent or detect this fraud.
from the broker. The amount in the long-term invest-
ment account is correct, and the transactions can
be clearly traced through the documentation attached 10. KICKBACK FRAUD
to the journal entries. There are no attempts made
The kickback is a form of fraud often associated with
to adjust either account to the lower of aggregate cost
purchasing. Most organizations expect their purchasing
or market.
agents to select the vendor that provides the best prod-
Required ucts at the lowest price. To influence the purchasing
agent in his or her decision, vendors may grant the
To achieve Solomon Publishing’s objective of sound in-
agent financial favors (cash, presents, football tickets,
ternal control, the company believes the following four
and so on). This activity can result in orders being
controls are basic for an effective system of accounting
placed with vendors that supply inferior products or
control:
charge excessive prices.
Authorization of transactions
Required
Complete and accurate record keeping
Describe the controls that an organization can employ
Access control
to deal with kickbacks. Classify each control as preven-
Independent verification tive, detective, or corrective.
a. Describe the purpose of each of the four controls
listed here.
11. EVALUATION OF CONTROLS
b. Identify an area in Oakdale’s investment proce-
dures that violates each of the four controls listed Gaurav Mirchandaniis is the warehouse manager for a
here. large office supply wholesaler. Mirchandaniis receives
c. For each of the violations identified, describe how two copies of the customer sales order from the sales
Oakdale can correct each weakness. department. He picks the goods from the shelves and
sends them and one copy of the sales order to the
shipping department. He then files the second copy in
9. FINANCIAL AID FRAUD a temporary file. At the end of the day, Mirchandaniis
Harold Jones, the financial aid officer at a small uni- retrieves the sales orders from the temporary file and
versity, manages all aspects of the financial aid updates the inventory subsidiary ledger from a