You are to submit a memo suggestion internal control changes to be implemented. Internal controls are...

 

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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 choose either the "Purchase Card Case Study" or “Opthalmic Surgeons, LTD vs. Paychex, Inc." and write a memo suggesting policies and procedural changes that should be implemented as part of the company's internal controls. Your suggestions 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 suggestion can be bulleted. You may use this memo as a guide. Required: •1-2 pages, single-spaced · Times New Roman font .Number pages Internal Control Basics Purchase Card Case Study Assignment: Given the objective, risk, and control activities, identify at least 5 violations of internal control in the example case study below. A small state agency has four employees: an executive director, a deputy director, a fiscal analyst (FA), and an administrative assistant (AA). All employees have been with the agency since it was formed about two years ago. The agency has been using purchase cards for about a year. The FA and AA each have a purchase card that they ordered themselves. They also each set their own spending limits on their cards. They each order goods and services. They are careful to follow the state purchasing rules, and use state contracts whenever possible. The FA and AA each verify that their own goods and services were received, and sign the packing slip or invoice. The FA authorizes payment on both purchase cards. The executive director does not have a purchase card in his name. However, the AA has written the account number for her purchase card in his planner so that he can occasionally order goods and services. He usually does not keep the credit card receipts for his purchases, but he does tell the AA what he purchased and instructs her on what expenditure coding to use. The AA then forwards the bill to the FA for payment. The AA purchases most of the goods and services for the agency with her purchase card. She always keeps her purchase card with her in her purse.. She also keeps receipts for all purchases that she has made in a folder in her desk drawer, verifies that the goods and services were received, and reconciles all receipts to her purchase card statement before sending to the FA for payment. The FA has known the AA since high school. Since he has known her for so long, he trusts her and takes her word that she has reconciled all receipts to her statement. He always authorizes and makes payment on her purchase card based on her word, especially since he knows that she keeps all documentation. The FA also purchases goods and services with his purchase card. Most of the charges on his card are for recurring payments, like the lease of office space, agency phone bills, etc. Since these are all agency charges, he authorizes and makes payment on his purchase card. The agency has written policies on purchase cards, but they aren't specific to the agency yet. They were obtained from a friend at another agency, and the AA is eventually going to make some modifications so that they are specific to the agency. Training is not formally provided since only two people in the agency are primarily using purchase cards. They tell each other when problems are encountered with the cards, so they feel that they are informed enough to be able to use them. 5o, were you able to identify at least 5 internal control violations in the case study above? Let's see how wel you did, the answers are on the following page 03/2010 mtherity lay sliereting that dhe agrat's mamr and aliti wih the principal be imhuded in a listing of epersentatives that is peidrd to a thind puts The principul may amake a maiestation by directing an agrut so make statemeins u thid pun erfurm acts r emdart negutiatin, plaring placing the a deing or derignating an agrut to piticn within an orgniat, ragrat in charge of a teanartion et ie Note that apparent authority is simply a hasis by which a thint parny can hold a principal or apparent principal liable whese that person has dne seeething ke make the thind party reasonally believe the agent or actor lad authoriry. Appurrat erity protects the thind party who acted upon a reasonable belief raceable to manifenaies of the principal or apparent principal. But apparet authority is net the same thing as actual aderity. where a mal agency relationship existi, an agent who act beyond the scope of actal anthority beeaches a duty to the principal. The principal in that circumtance has a daim agine the agent for any loss incurred. Cmt. a2.01. Two cases on the isue of apparent authurity . Opthalmic Surgeons, Ltd. v. Paychex, Inc. 632 F4 31 (lat Cir. 2011) OSL, a Rhode lland corparation, is a meical practice specialind in ophthalmology. Dr. William J. Andreoni has worked at OSL as a pbysician and suegece for twenty-six years. He has been part owner of OSI. since 1986 and became the sode oner of the practice in 1995. During the mid-190, OSL. began to grew. Therekae, the company ghe to lind a better way to aminister its payrola To this end, in 199, OSI. enered into am ocal contract with Paychrx for payroll proceming senices ithe "1989 Agreement In 1991, OSI. and Payches entered into a wrinen cotract pursuant to which Paychex was to provide direet deposit payull serices ihe "1994 Apreene.. Paychex's Rhode ldand ollicr handies apperosimately 7,000 dirnts. Payches alleges ihat it performs iti payrill procesing services laed on the infomation ies dients peonide. Earh new client, through its designated payroll comtact, peovides Paychex wih the rekevant employee information including names, addreses ocial security bes and salary infiormation. Paychex employees load this information onts a computer and use this indirmation to process the cient's payroll. Paychex aubmits reports and other documents ka in cirnta on a regular basis. These checks wil be paid to the emplayees. Because Paychex chargn its cirnts per echeck procrand, invoices to clients indicate bow many paychecka weer ird per pay perind. Finally, Paychex provides quarterly reports, yearly eports and W 2eamings statents to all clients In 1984, Carken Connor began working for OSI. as a ecdician who camed 57.00 per hour, She later became a likemed optician and the oicr manager, at which point she ramed $16,00 per hour. t is undispuatrd that, frotm the mid-19 il her temination in 2006, Connor handled payroll for OSL. and was its olfice managerand desigated payril contart. Paychex contacted Conter regularly to inqpuire about OsL's payroll. As Dr. Andreoni was aware, Connor would often call in oere than one week's worth of payroll at a time. OSI. alleges that during the yean that Connr requeted eamed paychecks, 20Oi to 2006, its employres were paid on a werkly banin. In 2001, Connor began mparsting that Payrhex ieert deposit into ber bank account more monry than reqired to pay her anual salary. Đuring the pay perinds when Connor requested nor than ber hase pay, she mguested that Paychex split her pay into two direct deposit paymets. A sotar point, a Payches epersentative told Connor that iuing her more than one payment Connor stated that she wanted to plit her chock becae a singler larger check would mult in a Larger tax withholding. Paychex did not contact anyoe at OSL. o verify Connor's request "ISO aada aao s pod ied ad it performs its payroll procesing senices based en the information its cliets provide. Each new client, durough its designated payroll connact, prwides Paehes with the relevant employe information inchuding names, addrees, wocial securiny bes and salary information. Paychex employees load this information unto a computer and e this inkmation to proces the client's payrell. Paychea sabmits reports and oher derments its dients en a rgalar lusis, These rrports inclade payroll jrnals and check which ar st the dient prior to the date the checks will be paid o the emplyees. Blecase Payches charges in clients per check procesed, invoices so clients indicate how many paychecka wene iard per pay peried. Finally, Paychex provides quarterly reports, yearly reports and W 2camings ets to all dirnts In 1984, Carleen Connor began working f OSL.a technician who camed 57.00 per hour. She later became a licensed eptician and the oice magrr, at which point she earned $16,00 per hour. It is undignuted that, frem de mid-19 ntil her temination in 200, Connor handlrd payroll for OSL.and was its office managr and desigatnd payroll contact. Paychex contacted Connor regularly to inguire about OSLs payroll. A Dr. Andreoni was aware, Connor would often cali in more tun cor werk's woth of payroll at a time. OSL. aleges that during the yran that Contr requnded rand paycherks, 2001 to 2006, its employees wre paid on a wreidy basis, In 2001, Canner begam earsting that Payches direct deposit into her hank account moer money than enquimd pay her annnal salary. During the pay periodh when Connor equested more than ber hase pay, e mquested that Paychex split her pay inno two direct depoit payments. Ar some point, a Paychex mpeesentative nold Connor that issuing ber more than one paymrnt fee a goem puy period was muee expenine for OSE. Commor stated that she wanted to split her checks because asingle larger check wuukd result in a larger tax withholding. Payches did nt contact anymeat OsL.verify Contr's request. t is undisputed that between 2001 and 2006, Coner dieected Paychex to pay her, and Paychex did in fact pay her, a ttal of $233,139 moe than her athorieed anal salary. It is also undispated that Paychex sent to OSL, eports condirming all pants made. These reports were sent to Connor's attention and Dr. Andreoni alges that he saw none of these reports because they were ot seut directly to his atention. OSL dcoeed she unathoried payments when Another employee took over Connor's duties. On October 30, 2007, OSI... Eled a berac of contract artion.againat Paychex... On September 9. 2009, the disarict court isued y jalgeent in favor of Paychex. OSI. filed a timely seticr of appeal om September 17, 200.. Di Although we have found that the cuntrat creates o olligation for Paychex to vrrify the information that dhe payroll contact prunides, we mt n eumine whether agecy law crates sach an olligation. OSL, argaes that the disarict cout emed by ignoring a disputed iae of material fact regarding Coanor's lack of appurent ahoriny so "pecity" the withdrawal of payments adding up to more than her authoeized weekly salary. We find that OSL's argument is without merit. A corporation must, by neceity, act drough its agnt Kinehaer KPAG LLP, 15 N.Y.34 446, 465, 912 NYSM S, 938 NEM 941 200 dicusing grueral principles of agency and corporatione It is undiquted that Camer was in fact authorined to handle payoll and was the designatrd payroll contact asigned to cneicae with Payches. Connor's actual auhority, however, did not extend to embezling funda by atoriring the isasance of paychecks in amounts in excess of her salary as this is mot what OsL, the principal, istructed her to du. The qurstices remains, bowrver, as to whether Conor was cdoaked with apputent authority vuch that Payches could have eaumahly relied upon her ahoriny e insur akdicional paychecks in her name. Restatement (Thind of Agrney 20 cta CApparent authority may survive the termination of actual authority or of an ageney rlatioip Osl. argues that Connor had no apparent authority where OSL, principal, did notat in a way that gave the appearance that 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 choose either the "Purchase Card Case Study" or “Opthalmic Surgeons, LTD vs. Paychex, Inc." and write a memo suggesting policies and procedural changes that should be implemented as part of the company's internal controls. Your suggestions 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 suggestion can be bulleted. You may use this memo as a guide. Required: •1-2 pages, single-spaced · Times New Roman font .Number pages Internal Control Basics Purchase Card Case Study Assignment: Given the objective, risk, and control activities, identify at least 5 violations of internal control in the example case study below. A small state agency has four employees: an executive director, a deputy director, a fiscal analyst (FA), and an administrative assistant (AA). All employees have been with the agency since it was formed about two years ago. The agency has been using purchase cards for about a year. The FA and AA each have a purchase card that they ordered themselves. They also each set their own spending limits on their cards. They each order goods and services. They are careful to follow the state purchasing rules, and use state contracts whenever possible. The FA and AA each verify that their own goods and services were received, and sign the packing slip or invoice. The FA authorizes payment on both purchase cards. The executive director does not have a purchase card in his name. However, the AA has written the account number for her purchase card in his planner so that he can occasionally order goods and services. He usually does not keep the credit card receipts for his purchases, but he does tell the AA what he purchased and instructs her on what expenditure coding to use. The AA then forwards the bill to the FA for payment. The AA purchases most of the goods and services for the agency with her purchase card. She always keeps her purchase card with her in her purse.. She also keeps receipts for all purchases that she has made in a folder in her desk drawer, verifies that the goods and services were received, and reconciles all receipts to her purchase card statement before sending to the FA for payment. The FA has known the AA since high school. Since he has known her for so long, he trusts her and takes her word that she has reconciled all receipts to her statement. He always authorizes and makes payment on her purchase card based on her word, especially since he knows that she keeps all documentation. The FA also purchases goods and services with his purchase card. Most of the charges on his card are for recurring payments, like the lease of office space, agency phone bills, etc. Since these are all agency charges, he authorizes and makes payment on his purchase card. The agency has written policies on purchase cards, but they aren't specific to the agency yet. They were obtained from a friend at another agency, and the AA is eventually going to make some modifications so that they are specific to the agency. Training is not formally provided since only two people in the agency are primarily using purchase cards. They tell each other when problems are encountered with the cards, so they feel that they are informed enough to be able to use them. 5o, were you able to identify at least 5 internal control violations in the case study above? Let's see how wel you did, the answers are on the following page 03/2010 mtherity lay sliereting that dhe agrat's mamr and aliti wih the principal be imhuded in a listing of epersentatives that is peidrd to a thind puts The principul may amake a maiestation by directing an agrut so make statemeins u thid pun erfurm acts r emdart negutiatin, plaring placing the a deing or derignating an agrut to piticn within an orgniat, ragrat in charge of a teanartion et ie Note that apparent authority is simply a hasis by which a thint parny can hold a principal or apparent principal liable whese that person has dne seeething ke make the thind party reasonally believe the agent or actor lad authoriry. Appurrat erity protects the thind party who acted upon a reasonable belief raceable to manifenaies of the principal or apparent principal. But apparet authority is net the same thing as actual aderity. where a mal agency relationship existi, an agent who act beyond the scope of actal anthority beeaches a duty to the principal. The principal in that circumtance has a daim agine the agent for any loss incurred. Cmt. a2.01. Two cases on the isue of apparent authurity . Opthalmic Surgeons, Ltd. v. Paychex, Inc. 632 F4 31 (lat Cir. 2011) OSL, a Rhode lland corparation, is a meical practice specialind in ophthalmology. Dr. William J. Andreoni has worked at OSL as a pbysician and suegece for twenty-six years. He has been part owner of OSI. since 1986 and became the sode oner of the practice in 1995. During the mid-190, OSL. began to grew. Therekae, the company ghe to lind a better way to aminister its payrola To this end, in 199, OSI. enered into am ocal contract with Paychrx for payroll proceming senices ithe "1989 Agreement In 1991, OSI. and Payches entered into a wrinen cotract pursuant to which Paychex was to provide direet deposit payull serices ihe "1994 Apreene.. Paychex's Rhode ldand ollicr handies apperosimately 7,000 dirnts. Payches alleges ihat it performs iti payrill procesing services laed on the infomation ies dients peonide. Earh new client, through its designated payroll comtact, peovides Paychex wih the rekevant employee information including names, addreses ocial security bes and salary infiormation. Paychex employees load this information onts a computer and use this indirmation to process the cient's payroll. Paychex aubmits reports and other documents ka in cirnta on a regular basis. These checks wil be paid to the emplayees. Because Paychex chargn its cirnts per echeck procrand, invoices to clients indicate bow many paychecka weer ird per pay perind. Finally, Paychex provides quarterly reports, yearly eports and W 2eamings statents to all clients In 1984, Carken Connor began working for OSI. as a ecdician who camed 57.00 per hour, She later became a likemed optician and the oicr manager, at which point she ramed $16,00 per hour. t is undispuatrd that, frotm the mid-19 il her temination in 2006, Connor handled payroll for OSL. and was its olfice managerand desigated payril contart. Paychex contacted Conter regularly to inqpuire about OsL's payroll. As Dr. Andreoni was aware, Connor would often call in oere than one week's worth of payroll at a time. OSI. alleges that during the yean that Connr requeted eamed paychecks, 20Oi to 2006, its employres were paid on a werkly banin. In 2001, Connor began mparsting that Payrhex ieert deposit into ber bank account more monry than reqired to pay her anual salary. Đuring the pay perinds when Connor requested nor than ber hase pay, she mguested that Paychex split her pay into two direct deposit paymets. A sotar point, a Payches epersentative told Connor that iuing her more than one payment Connor stated that she wanted to plit her chock becae a singler larger check would mult in a Larger tax withholding. Paychex did not contact anyoe at OSL. o verify Connor's request "ISO aada aao s pod ied ad it performs its payroll procesing senices based en the information its cliets provide. Each new client, durough its designated payroll connact, prwides Paehes with the relevant employe information inchuding names, addrees, wocial securiny bes and salary information. Paychex employees load this information unto a computer and e this inkmation to proces the client's payrell. Paychea sabmits reports and oher derments its dients en a rgalar lusis, These rrports inclade payroll jrnals and check which ar st the dient prior to the date the checks will be paid o the emplyees. Blecase Payches charges in clients per check procesed, invoices so clients indicate how many paychecka wene iard per pay peried. Finally, Paychex provides quarterly reports, yearly reports and W 2camings ets to all dirnts In 1984, Carleen Connor began working f OSL.a technician who camed 57.00 per hour. She later became a licensed eptician and the oice magrr, at which point she earned $16,00 per hour. It is undignuted that, frem de mid-19 ntil her temination in 200, Connor handlrd payroll for OSL.and was its office managr and desigatnd payroll contact. Paychex contacted Connor regularly to inguire about OSLs payroll. A Dr. Andreoni was aware, Connor would often cali in more tun cor werk's woth of payroll at a time. OSL. aleges that during the yran that Contr requnded rand paycherks, 2001 to 2006, its employees wre paid on a wreidy basis, In 2001, Canner begam earsting that Payches direct deposit into her hank account moer money than enquimd pay her annnal salary. During the pay periodh when Connor equested more than ber hase pay, e mquested that Paychex split her pay inno two direct depoit payments. Ar some point, a Paychex mpeesentative nold Connor that issuing ber more than one paymrnt fee a goem puy period was muee expenine for OSE. Commor stated that she wanted to split her checks because asingle larger check wuukd result in a larger tax withholding. Payches did nt contact anymeat OsL.verify Contr's request. t is undisputed that between 2001 and 2006, Coner dieected Paychex to pay her, and Paychex did in fact pay her, a ttal of $233,139 moe than her athorieed anal salary. It is also undispated that Paychex sent to OSL, eports condirming all pants made. These reports were sent to Connor's attention and Dr. Andreoni alges that he saw none of these reports because they were ot seut directly to his atention. OSL dcoeed she unathoried payments when Another employee took over Connor's duties. On October 30, 2007, OSI... Eled a berac of contract artion.againat Paychex... On September 9. 2009, the disarict court isued y jalgeent in favor of Paychex. OSI. filed a timely seticr of appeal om September 17, 200.. Di Although we have found that the cuntrat creates o olligation for Paychex to vrrify the information that dhe payroll contact prunides, we mt n eumine whether agecy law crates sach an olligation. OSL, argaes that the disarict cout emed by ignoring a disputed iae of material fact regarding Coanor's lack of appurent ahoriny so "pecity" the withdrawal of payments adding up to more than her authoeized weekly salary. We find that OSL's argument is without merit. A corporation must, by neceity, act drough its agnt Kinehaer KPAG LLP, 15 N.Y.34 446, 465, 912 NYSM S, 938 NEM 941 200 dicusing grueral principles of agency and corporatione It is undiquted that Camer was in fact authorined to handle payoll and was the designatrd payroll contact asigned to cneicae with Payches. Connor's actual auhority, however, did not extend to embezling funda by atoriring the isasance of paychecks in amounts in excess of her salary as this is mot what OsL, the principal, istructed her to du. The qurstices remains, bowrver, as to whether Conor was cdoaked with apputent authority vuch that Payches could have eaumahly relied upon her ahoriny e insur akdicional paychecks in her name. Restatement (Thind of Agrney 20 cta CApparent authority may survive the termination of actual authority or of an ageney rlatioip Osl. argues that Connor had no apparent authority where OSL, principal, did notat in a way that gave the appearance that

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Internal control is a process effected by an entitys board of directors management and other personn... View the full answer