Family Finance Company opened four personal loan offices in neighboring cities on January 2, 19X2. Small cash loans are made to borrowers, who repay the principal with interest in monthly installments over a period not exceeding two years. Ralph Minton, president of the company, uses one of the offices as a central office and visits the other offices periodically for supervision and internal auditing purposes. Mr. Minton is concerned about the honesty of his employees. He came to your office in December 19X2 and stated, "I want to install a system to prohibit employees from embezzling cash." He also stated, "Until I went into business for myself, I worked for a nationwide loan company with 500 offices, and I'm familiar with that company's accounting system and control procedures. I want to describe that structure so that you can install it for me, because it will absolutely prevent fraud." 

1. How would you advise Mr. Minton on his request? Discuss. 

2. How would you respond to the suggestion that the new structure would prevent embezzlement? Discuss. 

3. Assume that, in addition to undertaking the systems engagement in 19X3, you agreed to audit Family Finance Company's financial statements for the year ended. December 31, 19X2. No scope limitations were imposed. 

a. How would you determine the scope necessary to satisfactorily complete your audit? Discuss. 

b. Would you be responsible for the discovery of fraud in this audit? Discuss.