Snake Creek Company Has One Trusted Employee Who Is The Owne

Snake Creek Company Has One Trusted Employee Who As The Owner Said H

Snake Creek Company has one trusted employee who, as the owner said, handles all of the bookkeeping and paperwork for the company. This employee is responsible for counting, verifying, and recording cash receipts and payments, making the weekly bank deposit, preparing checks for major expenditures (signed by the owner), making small expenditures from the cash register for daily expenses, and collecting accounts receivable. The owners asked the local bank for a $20,000 loan. The bank asked that an audit be performed covering the year just ended. The independent auditor (a local CPA), in a private conference with the owner, presented some evidence of the following activities of the trusted employee during the past year: a. Cash sales sometimes were not entered in the cash register, and the trusted employee pocketed approximately $50 per month. b. Cash taken from the cash register (and pocketed by the trusted employee) was replaced with expense memos with fictitious signatures (approximately $12 per day). c. $300 collected on an account receivable from a valued out-of-town customer was pocketed by the trusted employee and was covered by making a $300 entry as a debit to Sales Returns and a credit to Accounts Receivable. d. $800 collected on an account receivable from a local customer was pocketed by the trusted employee and was covered by making an $800 entry as a debit to Sales Discounts and a credit to Accounts Receivable.

Paper For Above instruction

The scenario at Snake Creek Company highlights significant internal control weaknesses and employee misconduct that have led to theft by a trusted employee over the period of one year. Quantifying the total amount stolen and providing effective recommendations are critical steps for the company's management to rectify the situation, strengthen controls, and prevent future misappropriations.

Firstly, estimating the total theft amount requires analyzing each category of theft with assumptions based on the given data. The employee's theft from cash sales, daily cash replacements, and accounts receivable collections are primary areas to evaluate.

Regarding cash sales not entered and being pocketed, the employee reportedly pocketed approximately $50 a month. Multiplying this by 12 months results in an annual theft of about $600 in unrecorded cash sales ($50 x 12 = $600).

Next, the employee replaced daily cash taken from the cash register with expense memos with fictitious signatures, averaging about $12 per day. Assuming the firm operates 5 days a week over 52 weeks, the total working days per year are 5 x 52 = 260 days. Total theft from this activity then is approximately $12 x 260 = $3,120 annually.

For the accounts receivable thefts, the employee pocketed $300 from an out-of-town customer and another $800 from a local customer. The total stolen from accounts receivable collections is $300 + $800 = $1,100. The covering entries—such as debiting Sales Returns and Sales Discounts—serve to mask the theft, but they do not eliminate the loss.

Adding these figures provides an approximate total stolen amount over the year: $600 (cash sales not recorded) + $3,120 (cash theft from register replacements) + $1,100 (accounts receivable thefts) = $4,820. This figure likely underestimates actual thefts, considering possible undetected or unreported deviations; however, based on the given evidence, $4,820 is a reasonable estimate of the total amount stolen during the year.

In terms of recommendations, the company should immediate review and overhaul of internal controls is imperative. This includes segregating duties so that no single employee is responsible for handling both cash and record-keeping functions, thus reducing the risk of theft. Implementing cash reconciliation procedures, such as daily cash counts and independent verification, would help detect discrepancies promptly. Installing surveillance cameras in cash handling areas and requiring dual signatures for transactions over a certain amount can act as deterrents to theft.

Furthermore, automating cash handling procedures through point-of-sale (POS) systems that automatically record sales reduces opportunities for employees to manipulate records. Regular internal audits and surprise cash counts are essential to monitor ongoing activities, alongside a formal whistleblower policy to encourage reporting of suspicious activities.

Training employees in ethical standards and emphasizing accountability are also critical in fostering a culture of integrity. It may be beneficial to conduct background checks before hiring and to perform periodic background checks of current employees involved in sensitive functions.

Lastly, the company should consider installing a fraud detection system that can analyze cash and receivables data for unusual patterns, enabling early intervention. By adopting these measures, Snake Creek Company can significantly mitigate the risk of employee theft, improve internal controls, and restore stakeholder confidence, which is especially vital when seeking further financial support like the proposed bank loan.

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