Page 176 - Accounting Information Systems

CHAPTE R 3 Ethics, Fraud, and Internal Control 147

2. A purchases program, which keeps track of pur- At this point, Susan hired a fraud auditor to help her
chases and maintains detailed records of accounts locate the problem. In reviewing the computerized
payable. accounts receivable subsidiary ledger, the auditor
3. An accounts receivable program, which keeps track noticed the following:
of sales and collections on account and maintains
individual detailed balances of accounts receivable. 1. The summary totals from this report were not the
totals that were entered into the general ledger
4. A payroll program.
program at month-end. Different amounts had
The modules are not integrated (that is, data are not been entered. No one could explain why this had
transferred automatically between modules). At the end happened.
of the accounting period, summary information gener- 2. Some sheets in the computer listing had been
ated by the purchases, accounts receivable, and payroll ripped apart at the bottom. (In other words, the list-
programs must be entered into the general ledger pro- ing of the individual accounts receivable balances
was not a continuous list but had been split at sev-
gram to update the accounts affected by these programs.
eral points.)
Sales 3. When an adding machine tape of the individual
The crabmeat processing industry in this particular town account balances was run, the individual balances
was unusual in that selling prices for crabmeat were set did not add up to the total at the bottom of the report.
at the beginning of the year and remained unchanged for
Susan concluded that the accounts receivable program
the entire year. The company’s customers, all restaurants
was not running properly. The auditor’s recommendation
located within 100 miles of the plant, ordered the same
was that an effort be made to find out why the accounts
quantity of crabmeat each week. Because prices for the
receivable control account and the summary totals per
crabmeat remained the same all year and the quantity or-
the accounts receivable subsidiary ledger were not in
dered was always the same, the weekly invoice to each
agreement and why there were problems with the
customer was always for the same dollar amount.
accounts receivable listing. Because the accounts receiva-
Manual sales invoices were produced when orders
ble subsidiary and accounts receivable control account in
were taken, although these manual invoices were not pre-
the general ledger had been in agreement at the end of
numbered. One copy of the manual invoice was attached
April, the effort should begin with the April ending bal-
to the order shipped to the customer. The other copy was
ances for each customer by manually updating all of the
used to enter the sales information into the computer.
accounts. The manually adjusted May 30 balances
When the customer received the order, the customer
should then be compared with the computer-generated
would send a check to the company for the amount of
balances and any differences investigated.
the invoice. Monthly bills were not sent to customers
After doing this, Susan and John found several dif-
unless the customer was behind in payments (that is,
ferences. The largest difference was the following:
did not make a payment for the invoiced amount each
Although they found the manual sales invoice for Sale
week).
2, Susan and John concluded (based on the computer
Note: The industry was unique in another way: many
records) that Sale 2 did not take place. The auditor was
of the companies paid their workers with cash each
not sure and recommended that they call this customer
week (rather than by check). Therefore, it was not un-
and ask him the following:
usual for companies to request large sums of cash from
the local banks. 1. Did he receive this order?
2. Did he receive an invoice for it?
When Trouble Was Spotted
3. Did he pay for the order?
Shortly after the May 30 trial balance was run, Susan
4. If so, did he have a copy of his canceled check?
began analyzing the balances in the various accounts.
The balance in the cash account agreed with the cash Although John thought that this would be a waste of time,
balance she obtained from a reconciliation of the com- he called the customer. He received an affirmative answer
pany’s bank account. to all of his questions. In addition, he found that the cus-
However, the balance in the accounts receivable con- tomer’s check was stamped on the back with an address
trol account in the general ledger did not agree with the stamp giving only the company’s name and city rather than
total of the accounts receivable subsidiary ledger (which the usual ‘‘for deposit only’’ company stamp. When ques-
shows a detail of the balances owed by each customer). tioned, Debbie said that she sometimes used this stamp.
The difference was not very large, but the balances Right after this question, Debbie, who was sitting
should be in 100 percent agreement. nearby at the computer, called Susan to the computer