Linda Hall, manager of Rio Grande Building Corp., has been with the company for

Question

Linda Hall, manager of Rio Grande Building Corp., has been with the company for several years. She is a valued and trusted employee. Linda is in charge of recording collections on accounts, making the daily bank deposits, and reconciling the bank statements. As the sole manager and with responsibilities described above, she has not taken a vacation since she began working.

Earlier this year, clients began complaining to you, the president, about incorrect statements. As president, you checked into the matter. Linda assures you there is nothing to worry about in this situation. She asserts that the problem was due to slow mail, which made customers’ payments and statements cross in the mail. However, because clients were not complaining last year, you doubt that the mail is the primary reason for the problem. Consider the following questions as you respond:

What might be some of the reasons for the delay?

What are some other problems that might begin to occur?

What will you do to remedy the problem?

What should be done to make sure such problems are avoided in the future?

Explanation / Answer

1. Some of the reasons for the delay apart from mailing delay may be ,

a. Delay in depositing checks to bank

b. delay in entering the collection and clearing accounts receivables.

c Delay in preparation of bank reconciliation and the checks remaining to be entered not traced out as a result.

d. Delay on the part of the bank to get the checks cleared in time.

2. Some other factors may be too much worload on Linda and her work pressure may lead to fatigue and delay in processing works.

3. To remedy the problem, the President should talk to Linda and analyze her daily transaction volume. Ideally the same person depositing checks should not do accounts entry and bank reconciliations. It will be better to split the job among different accountatnts , this will speed up the process and improve the internal control also.

4. For a permanent remedy a few things may be done;

a. Lockbox facility may be introduced with the help of the bank . In Lockbox system , banks branches in most of the customer locations will have dedicated box where customers can drop Rio's checks instead of mailing them . BAnk branches will deposit the checks same day. This will reduce delay in deposit of checks.

b. Rio can think of implenmenting bank reconciliation by electronic upload of bank statement ,(if not already done) to fasten the process of bank reconciliation.

c. Continue the practice of splitting up Linda's job among other accountants so Than Linda can focus on supervision and controlling the overall collection management instead of transactional affairs.

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