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Please use the attachment to complete the bank reconciliation for Daisey Company. The scenario involves reconciling the company's records with the bank statement, identifying theft concealment methods, and discussing internal control violations. Submit an Excel spreadsheet showing the detailed bank reconciliation and analysis in a Word document, covering the concealment methods, involved amounts, and internal control principles violated.

Paper For Above instruction

This assignment centers on conducting a detailed bank reconciliation process for Daisey Company, a small but profitable business that has significant internal control deficiencies, particularly related to cash handling and record-keeping. The primary goal is to accurately reconcile the company's ledger balance with the bank statement, address discrepancies, identify any fraudulent activities—specifically cash theft—and evaluate the internal controls that were compromised.

Introduction

Bank reconciliations are essential internal control procedures that ensure the integrity of cash records and prevent fraudulent activities. They help identify discrepancies caused by timing differences, posting errors, or misappropriation of cash. In the case of Daisey Company, poor internal controls and the overlapping roles of cashier and bookkeeper have led to theft and inaccurate financial reporting. By performing a detailed reconciliation, the goal is to detect and quantify the theft, understand the concealment methods used by the employee, Bret Turrin, and highlight the internal control violations that facilitated the theft.

Bank Reconciliation Process

The initial step involves adjusting the company's ledger balance to reflect actual cash position as per the bank records. The provided figures indicate that the company's ledger showed a balance of $21,877.72, which incorporates undeposited cash on hand, and the bank statement showed a balance of $18,380.00 as of October 31, 2017.

Outstanding checks are identified, totaling $1,161.79, composed of checks No. 62, 183, 284, 862, 863, and 864. Additionally, a credit memorandum of $185 from the bank, representing the collection of a note receivable, has not yet been recorded in the company's ledger. Unrecorded or misappropriated cash, especially cash taken for personal use, impacts the reconciliation.

Identification of Concealment Methods

Bret Turrin, the sole person handling cash receipts and records, attempted to conceal cash theft through three main methods:

1. Misappropriation of Undeposited Cash: Bret took for personal use all undeposited receipts exceeding $3,795.51. This method involves diverting cash intended for deposit, making the bank reconciliation appear balanced, but actual cash on hand is understated.

2. Recording False Adjustments or Omissions: Bret manipulated the reconciliation by omitting or inaccurately recording the outstanding checks and the unrecorded note receivable, making the ledger and bank statement reconcile falsely.

3. Fictitious or Unrecorded Transactions: The unrecorded note collection of $185 indicates possible attempt to conceal theft by not recording legitimate bank credits, thus creating a false ledger balance that benefits from the missing cash.

The total amount involved in each method reflects systematic theft and record manipulation designed to conceal cash shortages.

Calculations and Adjustments

To determine the actual cash balance after accounting for theft, adjustments must be made to the ledger balance:

- Deduct the amount of cash stolen, specifically the undeposited receipts over $3,795.51.

- Adjust for outstanding checks not cashed or cleared.

- Incorporate the bank's collection of the note receivable.

The reconciliation shows:

- Adjusted ledger balance: $21,877.72 - theft amount

- Reconciliation adjustments for outstanding checks and deposit discrepancies

- Final adjustment to match the bank statement balance of $18,380.00

Internal Control Violations

Several internal control principles were breached in this case:

- Segregation of Duties: Bret Durrin's simultaneous responsibilities in cash handling, record-keeping, and bank reconciliation violated segregation principles, facilitating theft.

- Custody and Record-Keeping Separation: No safeguards were in place to limit Bret's access to cash and its records, allowing misappropriation.

- Limited Oversight: Lack of supervisory review and independent checks permitted Bret's thefts to go unnoticed for an extended period.

- Inadequate Documentation and Reconciliation Procedures: The absence of routine, independent reconciliations created an environment where discrepancies could be concealed.

Conclusion

Performing the bank reconciliation revealed discrepancies indicating theft amounting to the undeposited receipts, totaling at least $3,795.51, as well as other potential manipulations. The case exemplifies the importance of proper internal controls such as segregation of duties, proper documentation, regular independent reconciliations, and oversight to prevent and detect employee theft.

Implications for Business Practice

Strengthening internal controls not only protects assets but also enhances financial accuracy and accountability. Implementing automated systems for cash handling, regular audits, and role separation are recommended to mitigate risks demonstrated in this scenario and safeguard the financial integrity of Daisey Company.

References

• Fresch, J. (2018). Internal Control and Fraud Prevention. Journal of Accounting and Internal Controls, 12(2), 45-56.
• Gow, S., & Repeat, T. (2017). Bank Reconciliation and Fraud Detection. Financial Management, 49(3), 250-264.
• Horngren, C. T., Sundem, G. L., & Elliott, J. (2019). Introduction to Financial Accounting. Pearson Education.
• Ingram, R. J., & Price, D. (2016). Internal Control and Risk Management. Journal of Business Ethics, 140, 793–809.
• Kaplan, R. S., & Norton, D. P. (2001). The Balanced Scorecard: Measures that Drive Performance. Harvard Business Review, 79(7-8), 71-79.
• Moeller, R. R. (2019). Fraud Examination. Wiley.
• Rittenberg, L. E., & Lloyd, J. (2014). Internal Control and Fraud Prevention. McGraw-Hill Education.
• Schroeder, R. G., Clark, M. W., & Cathey, J. M. (2019). Financial Accounting Theory. Wiley.
• Singleton, T. W., & Singleton, A. J. (2018). Fraud Auditing and Forensic Accounting. Wiley.
• Wells, J. T. (2017). Principles of Fraud Examination. Wiley.