Gb518-Unit3

Problem 6-5: Internal Control

Required

The Sarbanes-Oxley Act of 2002 was enacted in order to curtail the series of accounting activities that would seriously compromise the integrity of a business mainly in response to a number of major corporate scandals. Mary Morris-Manning seems quite dedicated and involved with the operations of her business, Morris Mart Inc., which by all accounts is an admirable feat. However, the potential for a plethora of problems is too prominent. The auditing standards of the aforementioned act were made just for this type of case.

The problems with Morris Mart Inc.’s current accounts receivable system are the lack of independent verification, no segregation of duties amongst staff, and the mixing of customer cronyism with business dealings. Mary is engaging herself into too much operational and financial activity, which collides with ethical considerations. I would have several suggestions to improve the internal control. For starters, I would segregate the invoice mailings and recording of the amount billed and payments. My reasoning is that Mary is known to receive personal notes along with the payments and an objective observer would reasonably assume that Mary could surrender to the temptation of skimming off some dollars from the invoice to appease her loyal customers. To blend the dissemination of payment obligations with the duties of receiving actual payments is not advisable and should be avoided if it can be helped because the checks and balances system becomes discredited with “individual management”. Next I would suggest Mary allow other staff members take over parts of her job intermittently and take off for weekends because fatigue can also weaken the system of internal control. In addition, the accountant should be given the responsibility of dealing with accounts payable while the clerk takes on the customer cash transactions.

Mary should be made aware that she is not the problem. It’s circumstance that...