Question

Each of the following situations has an internal control weakness.
a. Linda Grable has been your trusted employee for 30 years. She performs all cash-handling and accounting duties. Linda just purchased a new Lexus and a new home in an expensive suburb. As owner of the company, you wonder how she can afford these luxuries because you pay her only $35,000 a year and she has no sources of outside income.
b. Sanchez Hardwoods, a private company, falsified sales and inventory figures in order to get an important loan. The loan went through, but Sanchez Hardwoods later went bankrupt and couldn’t repay the bank.
c. The office supply company where Champ’s Sporting Goods purchases its business forms recently notified Champ’s Sporting Goods that its documents were no longer going to be prenumbered. Alex Champ, the owner, replied that he never uses the receipt numbers anyway.
d. Discount stores, such as Target, make most of their sales in cash, with the remainder in credit card sales. To reduce expenses, one store manager allows the cashiers to record sales in the accounting records.

Identify the missing internal control in each situation. Answers should include audit, documentation, and separation of duties. Identify the possible problem caused by each control weakness. Answers should include theft and unreliable financial statements. Propose a solution to each internal control problem.



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  • CreatedApril 29, 2014
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