The following are general questions about internal control. Choose the best response. 

a. Which of the following situations is not an example of an inherent limitation of internal control? 

(1) A programming error in the design of an automated control allows an employee to give himself an unauthorized pay increase. 

(2) Management’s failure to enforce control policies surrounding access to inventory allows employees to steal assets. 

(3) A lack of physical controls over the safeguarding of assets allows an employee to steal company assets. 

(4) A fraud scheme whereby an employee orders personal goods and his supervisor, who is in on the scheme, signs the checks to pay for those goods. 

b. Which of the following factors are included in an entity’s control environment? 

c. Which of the following correctly describes an internal control component? 

(1) Control activities set the tone of the organization. 

(2) Information and communication systems have to do with management’s analysis of risk. 

(3) Risk assessment relates to assessing the quality of the internal control structure over time. 

(4) Monitoring relates to ongoing assessment by management to determine whether controls are operating as intended.

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Participation of Those Charged With Governance Integrity and Organizational Ethical Values Structure (1) Yes Yes No (2) Yes Yes Yes (3) No Yes Yes (4) Yes No Yes