Question

BTN 6-3 Harriet Knox, Ralph Patton, and Marcia Diamond work for a family physician, Dr. Gwen Conrad, who is in private practice. Dr. Conrad is knowledgeable about office management practices and has segregated the cash receipt duties as follows. Knox opens the mail and prepares a triplicate list of money received. She sends one copy of the list to Patton, the cashier, who deposits the receipts daily in the bank. Diamond, the recordkeeper, receives a copy of the list and posts payments to patients’ accounts. About once a month the office clerks have an expensive lunch they pay for as follows. First, Patton endorses a patient’s check in Dr Conrad’s name and cashes it at the bank. Knox then destroys the remittance advice accompanying the check. Finally, Diamond posts payment to the customer’s account as a miscellaneous credit. The three justify their actions by their relatively low pay and knowledge that Dr. Conrad will likely never miss the money.

Required

4. Suggest additional internal controls that Dr Conrad could implement

Short answer

Answer

To prove payment, must tell patients to insist on an official receipt. Inform the patient to cross the checks, and it needs to be ‘for account payee only.’

Step-by-step solution

Step-by-Step SolutionStep 1: Introduction to topic

Internal controls: Internal controls are an organization's systems, rules, and methodology to guarantee the honesty of financial and bookkeeping data, advance responsibility, and prevent fraud.

The additional internal controls that Dr Conrad could implement-

Dr. Conrad needs toinstruct the bank not to accept endorsements to patient checks. Any adjustment or credit in the account must be approved. Remittance should be marked as paid once it is met.