Identify the internal control weaknesses in each of the following situations, and indicate what change or changes you would recommend to eliminate the weaknesses:
1. The internal audit staff of Wichita Aerospace, Inc., reports to the controller. The company conducts internal audits only when a department manager requests one, and audit reports are confidential documents prepared exclusively for the manager. The company does not allow internal auditors to talk to the external auditors.
2. Liz Paltrow, president of Southwestern State Bank, a small-town Wyoming bank, wants to expand the size of her bank. She hired Fred Gladstone to begin a foreign loan department. Gladstone had previously worked in the international department of a London bank. Paltrow told him to consult with her on any large loans, but she never specified exactly what was meant by “large.” At the end of Gladstone’s first year, Paltrow was surprised and pleased by Gladstone’s results. Although he had made several loans larger than any made by other sections of the bank and had not consulted with her on any of them, Paltrow hesitated to say anything because the financial results were so good. She certainly did not want to upset the person most responsible for the bank’s excellent growth in earnings.
3. Isabelle Reed is in charge of purchasing and receiving watches for Import Jewelry, Inc., a chain of jewelry stores. Reed places orders, fills out receiving documents when the watches are delivered, and authorizes payment to suppliers. According to Import Jewelry’s procedures manual, Reed’s activities should be reviewed by a purchasing supervisor. However, to save money, the supervisor was not replaced when she resigned 3 years ago. No one seems to miss the supervisor.

  • CreatedFebruary 20, 2015
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