Solution to question 9-37
i) The risks associated with the current method of accounting at Frankincents are as follows:
The owner Gaboria Frank relies solely on Norma a part time bookeeper, that works two days a week with minimal or no supervision. The owner trusts the bookkeeper completely and the firm does not encourage control practices such as separate passwords and supervision
Norma has developed the systems all by herself and is the only one who understands the nature of the software used. As the business owner, Gaboria should be aware of the systems put in place and should also consult his accountant before the implementations of the systems
Only Norma is responsible for the complete accounting function and its activities, such as accounts receivable, disbursements, payroll, etc. There is no segregation of duties, and even though in small firms segregation of duties is not always possible, there is no override of control by the owner, giving the incentive and the opportunity for fraud. Additionally, Norma being a part-time employee may have the incentive and pressure to manipulate and increases the risk for fraud.

ii) Being a small business it is not always possible to have segregation of duties and the owner, Gaboria Frank should personally perform operational and clerical activities such as accounts receivable, cash disbursements and payroll. This will give stronger control on activities that have high inherent risk and lower the opportunity and risk of fraud by Norma.
Additionally, Frank has to oversee the activities by Norma, and have additional controls such as signing authority on changes to payroll and additions to new payment recipients. Frank also needs to reconcile the general ledger on a regular basis and must create copies and back up of the data from the accounting department regularly.
Finally, Frank must consult with his accountant o