_{You are to submit a memo suggestion internal control changes to be implemented. Internal controls are a necessary and integral part of an accounting system. The purpose of internal controls is to protect assets, ensure reliable accounting, promote efficient operations, and urge adherence to company policies. The principles of internal controls include: establish responsibilities, maintain adequate records, insure assets and bond key employees, separate recordkeeping from custody of assets, divide responsibility for related transactions (separation of duties), apply technological controls, perform regular and independent reviews. You are to read and analyze Opthalmic Surgeons, LTD vs. Paychex, Inc. and write a memo recommending policies and procedural changes that should be implemented as part of the companys internal controls. Your recommendations should specify which internal control purpose is satisfies and which internal control principle is most closely matches. In your statements, identify the issue you are trying to correct. Ex: Protect Assets (cash). Separation of Duties. Having a separate person review payroll could have prevented the fraud. Your statements must be detailed and in complete sentences and paragraphs; each recommendation can be bulleted. You may use this memo as a guide. Required: 1-2 pages, single-spaced Times New Roman font Number pages}

_{authority by directing that the agents name and affiliation with the principal be included in a listing of representatives that is provided to a third party. The principal may make a manifestation by directing an agent to make statements to third parties or directing or designating an agent to perform acts or conduct negotiations, placing an agent in a position within an organization, or placing the agent in charge of a transaction or situation. Note that apparent authority is simply a basis by which a third party can hold a principal or apparent principal liable where that person has done something to make the third party reasonably believe the agent or actor had authority. Apparent authority protects the third party who acted upon a reasonable belief traceable to manifestations of the principal or apparent principal. But apparent authority is not the same thing as actual authority; where a real agency relationship exists, an agent who acts beyond the scope of actual authority breaches a duty to the principal. The principal in that circumstance has a claim against the agent for any loss incurred. Cmt. a, 2.03. Two cases on the issue of apparent authority follow. Opthalmic Surgeons, Ltd. v. Paychex, Inc. 632 F.3d 31 (1st Cir. 2011) OSL, a Rhode Island corporation, is a medical practice specialized in ophthalmology. Dr. William J. Andreoni has worked at OSL as a physician and surgeon for twenty-six years. He has been part owner of OSL since 1986 and became the sole owner of the practice in 1993. During the mid1980s, OSL began to grow. Therefore, the company sought to find a better way to administer its payroll. To this end, in 1989, OSL entered into an oral contract with Paychex for payroll processing services (the 1989 Agreement). In 1994, OSL and Paychex entered into a written contract pursuant to which Paychex was to provide direct deposit payroll services (the 1994 Agreement) . . . Paychexs Rhode Island office handles approximately 7,000 clients. Paychex alleges that it performs its payroll processing services based on the information its clients provide. Each new client, through its designated payroll contact, provides Paychex with the relevant employee information including names, addresses, social security numbers and salary information. Paychex employees load this information onto a computer and use this information to process the clients payroll. Paychex submits reports and other documents to its clients on a regular basis. These reports include payroll journals and checks which are sent to the client prior to the date the checks will be paid to the employees. Because Paychex charges its clients per check processed, invoices to clients indicate how many paychecks were issued per pay period. Finally, Paychex provides quarterly reports, yearly reports and W2 earnings statements to all clients. In 1984, Carleen Connor began working for OSL as a technician who earned $7.00 per hour. She later became a licensed optician and the office manager, at which point she earned}

_{30 $16.00 per hour. It is undisputed that, from the mid1990s until her termination in 2006, Connor handled payroll for OSL and was its office manager and designated payroll contact. Paychex contacted Connor regularly to inquire about OSLs payroll. As Dr. Andreoni was aware, Connor would often call in more than one weeks worth of payroll at a time. OSL alleges that during the years that Connor requested unearned paychecks, 2001 to 2006, its employees were paid on a weekly basis. In 2001, Connor began requesting that Paychex direct deposit into her bank account more money than required to pay her annual salary. During the pay periods when Connor requested more than her base pay, she requested that Paychex split her pay into two direct deposit payments. At some point, a Paychex representative told Connor that issuing her more than one payment for a given pay period was more expensive for OSL. Connor stated that she wanted to split her checks because a single larger check would result in a larger tax withholding. Paychex did not contact anyone at OSL to verify Connors request. It is undisputed that between 2001 and 2006, Connor directed Paychex to pay her, and Paychex did in fact pay her, a total of $233,159 more than her authorized annual salary. It is also undisputed that Paychex sent to OSL reports confirming all payments made. These reports were sent to Connors attention and Dr. Andreoni alleges that he saw none of these reports because they were not sent directly to his attention. OSL discovered the unauthorized payments when another employee took over Connors duties. On October 30, 2007, OSL . . . filed a breach of contract action . . . against Paychex . . . On September 9, 2009, the district court issued summary judgment in favor of Paychex. OSL filed a timely notice of appeal on September 17, 2009 . . . Discussion Although we have found that the contract creates no obligation for Paychex to verify the information that the payroll contact provides, we must now examine whether agency law creates such an obligation. OSL argues that the district court erred by ignoring a disputed issue of material fact regarding Connors lack of apparent authority to specify the withdrawal of payments adding up to more than her authorized weekly salary. We find that OSLs argument is without merit. A corporation must, by necessity, act through its agents. Kirschner v. KPMG LLP, 15 N.Y.3d 446, 465, 912 N.Y.S.2d 508, 938 N.E.2d 941 (2010) (discussing general principles of agency and corporations). It is undisputed that Connor was in fact authorized to handle payroll and was the designated payroll contact assigned to communicate with Paychex. Connors actual authority, however, did not extend to embezzling funds by authorizing the issuance of paychecks in amounts in excess of her salary as this is not what OSL, the principal, instructed her to do. The question remains, however, as to whether Connor was cloaked with apparent authority such that Paychex could have reasonably relied upon her authority to issue additional paychecks in her name. Restatement (Third) of Agency 2.03 cmt. a (Apparent authority may survive the termination of actual authority or of an agency relationship.). OSL argues that Connor had no apparent authority where OSL, as principal, did not act in a way that gave the appearance that}