Audit accounting

After reading Chapter 3 of your Forensic Accounting and Fraud Examination textbook, complete the following problems, which will help you apply your knowledge of the fundamental business processes:

· Case 47 on page 77.

· Case 48 on page 77.

· Case 53 on page 79.

47. Green Gooey Company is evaluating all of its internal control processes. Betty Webit, the controller, believes that overall the processes are fairly decent, but she is concerned that there is a lack of integration between the internal control structure and Green Gooey's enterprise risk management (ERM) system. She turns to you, a forensic accountant, for advice on how to integrate the ERM system with internal controls.

a. What type of general advice might you give to Betty Webit?

b. How might ERM and the internal control structure be integrated at the organization level? Should the same person be in charge of both?

c. What are some ERM considerations that are not directly relevant to internal control?

48. The concept of reasonable assurance applies to internal control, but Maria Salzo, the chief compliance officer of the ABC Company, says that she does not care about reasonable assurance. She wants absolute compliance in all matters relating to the financial statements. Here's what she said: “As long as I'm working here, we will have a perfectly tight system that ensures absolutely no fraud in our financial statements.” Tom Cheepez, the controller, disagreed with Maria Salzo and argued that anything more than reasonable assurance is both financially and practically impossible.

a. Do you agree with Tom Cheepez or Maria Salzo? Explain.

b. Is absolutely preventing financial statement fraud an unrealistic goal?

c. Could such a goal be even partially obtainable if the internal auditor reports to the CEO?

53. Barbara Minker owns South Texas Falldown Construction Company that specializes in residential construction in new gated communities. Her staff consists of Wilson Straight (the office accountant), Georgia Mint (the secretary), 12 job managers, and about 200 workers including carpenters, plasterers, and licensed plumbers. New workers are hired using the following procedures:

· The job managers hire new workers who show up at one of the job sites looking for work. This is a common practice in the industry in which turnover among workers is a constant problem.

· A job manager who hires a new worker has the worker fill out and sign a brief form that includes the worker's name, social security number, and contact information.

· Every Monday and Wednesday afternoon, the job managers give their completed new worker forms to Wilson Straight to ensure that the new workers are added to the payroll.

· Late Thursday afternoon, each job manager gives Wilson Straight a payroll report that shows the time worked for each worker, which he uses to prepare pay slips for each worker.

· Wilson Straight gives the pay slips to Georgia Mint, who totals them; she then goes to the bank and makes a cash withdrawal for the total payroll for the workers. Finally, she gives each job manager the exact amount of cash needed to pay that job manager's workers.

Barbara Minker had often considered paying employees with checks instead of cash, but many of the workers complained that checks were often difficult to cash and that they needed cash right away to buy food and pay rent. This problem and a shortage of workers forced Barbara to continue to pay workers in cash.

Evaluate payroll-related internal controls for South Texas Falldown Construction Company and make suggestions for improvement in its payroll-related internal controls.