At Forrest Industries, all sales are on account. Sienna Marcos is responsible for mailing invoices to customers, recording the amount billed, opening mail, recording the payment, and making deposits to the bank. Sienna is very devoted to the family

Question

business and never takes off more than one or two days for a long weekend. The customers know Sienna and sometimes send personal notes with their payments. Another clerk handles all aspects of accounts payable. Sienna's brother, who is president of Forrest Industries, has hired an accountant to help with expansion. REQUIRED: 1 . List some problems with the current accounts receivable system. 2 . What suggestions would you make to improve internal control? 3 . How would you explain to Sienna that she personally is not the problem?

Answer 1

1 . Unfortunately, Forrest Industries suffers from a lack of segregation of duties. Sienna handles all tasks associated with collection of customer accounts.
2 . Sienna should not handle all aspects of accounts receivable, billing, collection, and bank deposits. Two different employees should mail invoices and record the amounts billed. Two employees should be present when the mail is opened. Another employee should be responsible for recording collections from customers and this employee should be separate from the person who makes the bank deposits. Finally, all employees should be required to take vacations, and there should be rotation of job duties among employees.
3 . Someone should explain to Sienna that she personally is not the problem but that a good system of internal control requires certain changes to be made. This could be explained to her not in the context of fraud but rather in the context of the necessity to verify and check the work performed by all employees.