If You Need Love Get a Puppy: A Case Study on Professional Skepticism and Auditor Independence

Question #5: Identify controls that could have helped prevent or detect this theft, had they been in place
Answer:
* By providing fiscal policies and procedures in writing that are approved Board of Directors the entities sets a major underlying foundation for behavior that is expected and required. * These policies should include conflict of interest and code of ethics section. * Procedures should be updated every year * It is important that employees are taught and trained in the policies so that they learned of their existence and they get a sense of what is expected of them. * It is also important to exercise segregation of duties in the workplace. This means require different parties to perform key parts of the transaction. Specifically, separate the authorization, custody, record keeping and reconciliation duties.
In the case, not only is Jessica in charge of the custody and record keeping duty, but there also seems that there isn’t any supervising bank reconciliation activity being performed.
There are different controls that this entity could have used to avoid segregation of duties problems experienced that led to the burglary of funds by Jessica. Some of these are: * Implement a bank lockbox system that receives the entity payments. These system would have avoided Jessica or any employee to have to deal with cash by just getting bank notifications of the daily deposits for recording. * If a lockbox system is unavailable/undesirable, two entity’s employees should receive payments, list the payments and generate deposits. * This control could be circumvented by collusion of employees. * Additionally, periodic reconciliations of cash receipts for entities books should be performed by a different employee. * Additional controls could be: * Have the cash receiving persons issue receipts for cash and pre-number receipt book. * Jessica supervisor could do unannounced cash counts for a day/week and match them to the cash receipts journal.