Campus Supply Store purchases merchandise on credit from a large number of suppliers. During the past five years, Campus’s annual sales have grown from $100,000 to $1,500,000. A recent article in the local newspaper disclosed that an employee of another firm had been arrested for embezzling funds from his employer by diverting payments for purchases to his own bank account. Because of that article, the accountant for Campus has decided to examine Campus’s procedures for purchases and payables.
Currently three different employees are authorized to order merchandise for the store. These employees normally complete paperwork provided by the suppliers’ sales representatives, keeping a copy for their records. When the ordered merchandise arrives, whomever the delivery person can locate signs for the package. Bills are sent to the store by suppliers and are paid by Campus’s accountant when due.
Required:
1. Indicate which general principles of internal control are violated by Campus’s procedures for purchases and payables.
2. Recommend procedures that would incorporate the five general categories of internal control where possible.