Each of the following situations reveals an internal control weakness:
Situation a. In evaluating the internal control over cash payments of York Manufacturing, an auditor learns that the purchasing agent is responsible for purchasing diamonds for use in the company’s manufacturing process, approving the invoices for payment, and signing the checks. No supervisor reviews the purchasing agents work.
Situation b. Rita White owns an architectural firm. White’s staff consists of 16 professional architects, and White manages the office. Often, Whites work requires her to travel to meet with clients. During the past six months, White has observed that when she returns from a business trip, the architecture jobs in the office have not progressed satisfactorily. White learns that when she is away, two of her senior architects take over office management and neglect their normal duties. One employee could manage the office.
Situation c. M. J. Dowd has been an employee of the City of Northport for many years. Because the city is small, Dowd performs all accounting duties, plus opening the mail, preparing the bank deposit, and preparing the bank reconciliation.

1. Identify the missing internal control characteristic in each situation.
2. Identify each firm’s possible problem.
3. Propose a solution to the problem.

  • CreatedDecember 10, 2012
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