Internal control of cash payments Paragon Tech Company, a communications equipment manufacturer, recently fell victim to a fraud scheme developed by one of its employees. To understand the scheme, it is necessary to review Paragon’s procedures for the purchase of services. The purchasing agent is responsible for ordering services (such as repairs to a photocopy machine or office cleaning) after receiving a service requisition from an authorized manager. However, because no tangible goods are delivered, a receiving report is not prepared. When the Accounting Department receives an invoice billing Paragon Tech for a service call, the accounts payable clerk calls the manager who requested the service in order to verify that it was performed. The fraud scheme involves Mae Jansma, the manager of plant and facilities. Mae arranged for her uncle’s company, Radiate Systems, to be placed on Paragon’s approved vendor list. Mae did not disclose the family relationship. On several occasions, Mae would submit a requisition for services to be provided by Radiate. However, the service requested was really not needed, and it was never performed. Radiate would bill Paragon for the service and then split the cash payment with Mae. Explain what changes should be made to Paragon Tech Company’s procedures for ordering and paying for services in order to prevent such occurrences in the future.

BuyFind

Corporate Financial Accounting

14th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781305653535
BuyFind

Corporate Financial Accounting

14th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781305653535

Solutions

Chapter 7, Problem 7.15EX
Textbook Problem

Internal control of cash payments

Paragon Tech Company, a communications equipment manufacturer, recently fell victim to a fraud scheme developed by one of its employees. To understand the scheme, it is necessary to review Paragon’s procedures for the purchase of services.

The purchasing agent is responsible for ordering services (such as repairs to a photocopy machine or office cleaning) after receiving a service requisition from an authorized manager. However, because no tangible goods are delivered, a receiving report is not prepared. When the Accounting Department receives an invoice billing Paragon Tech for a service call, the accounts payable clerk calls the manager who requested the service in order to verify that it was performed.

The fraud scheme involves Mae Jansma, the manager of plant and facilities. Mae arranged for her uncle’s company, Radiate Systems, to be placed on Paragon’s approved vendor list. Mae did not disclose the family relationship.

On several occasions, Mae would submit a requisition for services to be provided by Radiate. However, the service requested was really not needed, and it was never performed. Radiate would bill Paragon for the service and then split the cash payment with Mae.

Explain what changes should be made to Paragon Tech Company’s procedures for ordering and paying for services in order to prevent such occurrences in the future.

Expert Solution

Want to see the full answer?

Check out a sample textbook solution.

Want to see this answer and more?

Experts are waiting 24/7 to provide step-by-step solutions in as fast as 30 minutes!*

*Response times vary by subject and question complexity. Median response time is 34 minutes and may be longer for new subjects.

Chapter 7 Solutions

Corporate Financial Accounting
Ch. 7 - Internal control elements Identify each of the...Ch. 7 - Items on companys bank statement The following...Ch. 7 - Bank reconciliation The following data were...Ch. 7 - Petty cash fund Prepare journal entries for each...Ch. 7 - Sarbanes-Oxley internal control report Using...Ch. 7 - Internal Controls Faith Cassen has recently been...Ch. 7 - Internal Controls Ramonas Clothing is a retail...Ch. 7 - Internal Controls for bank lending Pacific Bank...Ch. 7 - Internal Controls One of the largest losses in...Ch. 7 - Internal controls An employee of JHT Holdings,...Ch. 7 - Internal controls All-Around Sound Co. discovered...Ch. 7 - Financial statement fraud A former chairman, CFO,...Ch. 7 - Internal control of cash receipts The procedures...Ch. 7 - Internal control of cash receipts Sergio Flores...Ch. 7 - Internal control of cash receipts The mailroom...Ch. 7 - Entry for cash sales; cash short The actual cash...Ch. 7 - Entry for cash sales; cash over The actual cash...Ch. 7 - Internal control of cash payments Abbe Co. is a...Ch. 7 - Internal control of cash payments Paragon Tech...Ch. 7 - Bank reconciliation Identify each of the following...Ch. 7 - Entries based on bank reconciliation Which of the...Ch. 7 - Bank reconciliation The following data were...Ch. 7 - Entries for bank reconciliation Using the data...Ch. 7 - Entries for note collected by bank Accompanying a...Ch. 7 - Bank reconciliation An accounting clerk for...Ch. 7 - Bank reconciliation The following bank...Ch. 7 - Using bank reconciliation to determine cash...Ch. 7 - Petty cash fund entries Journalize the entries to...Ch. 7 - Evaluating internal control of cash T he following...Ch. 7 - Transactions for petty cash, cash short and over...Ch. 7 - Bank reconciliation and entries The cash account...Ch. 7 - Bank reconciliation and entries The cash account...Ch. 7 - Bank reconciliation and entries Beeler Furniture...Ch. 7 - Evaluating internal control of cash The following...Ch. 7 - Transactions for petty cash, cash short and over...Ch. 7 - Bank reconciliation and entries The cash account...Ch. 7 - Bank reconciliation and entries The cash account...Ch. 7 - Bank reconciliation and entries Sunshine Interiors...Ch. 7 - Continuing Company AnalysisAmazon: Days cash on...Ch. 7 - Apache: Days cash on hand Apache Corporation is an...Ch. 7 - Krispy Kreme and Dunkin: Days cash on hand Krispy...Ch. 7 - Nike, lululemon, and Under Armour: Days cash on...Ch. 7 - Ethics in Action Tehra Dactyl is an accountant for...Ch. 7 - Communication Wholesome and Happy Foods is a...

Additional Business Textbook Solutions

Find more solutions based on key concepts
Why should policymakers think about incentives?

Principles of Microeconomics (MindTap Course List)

What are the major components of a marketing strategy.

Foundations of Business (MindTap Course List)

To provide a starting point for gauging a companys relative valuation, analysts often look at a companys price-...

Fundamentals of Financial Management, Concise Edition (with Thomson ONE - Business School Edition, 1 term (6 months) Printed Access Card) (MindTap Course List)

Explain how corporate profits are taxed twice.

Principles of Economics (MindTap Course List)