1. A well- designed system of internal control that is functioning effectively is most likely to detect an irregularity arising from
a. The fraudulent action of several employees.
b. The fraudulent action of an individual employee.
c. Informal deviations from the official organization chart.
d. Management fraud.

2. To provide for the greatest degree of independence in per-forming internal auditing functions, an internal auditor most likely should report to the
a. Financial vice-president.
b. Corporate controller.
c. Board of Directors.
d. Corporate stockholders.

3. The use of fidelity bonds may indemnify a company from embezzlement losses. The use also
a. Reduces the company’s need to obtain expensive business interruption insurance.
b. Protects employees who made unintentional errors from possible monetary damages resulting from such errors.
c. Allows the company to substitute the fidelity bonds for various parts of internal accounting control.
d. Reduces the possibility of employing people with dubious records in positions of trust.

4. For good internal control, which of the following functions should not be the responsibility of the treasurer’s department?
a. Data processing.
b. Handling of cash.
c. Custody of securities.
d. Establishment of credit policies.

5. Which of the following sets of duties would ordinarily be considered basically incompatible in terms of good internal control?
a. Preparation of monthly statements to customers and maintenance of the accounts receivable subsidiary ledger.
b. Posting to the general ledger and approval of additions and terminations relating to the payroll.
c. Custody of unmailed signed checks and maintenance of expense subsidiary ledgers.
d. Collection of receipts on account and maintaining accounts receivable records.

6. The Foreign Corrupt Practices Act requires that
a. Auditors engaged to examine the financial statements of publicly held companies report all illegal payments to the SEC.
b. Publicly held companies establish independent audit committees to monitor the effectiveness of their system of internal control.
C. U.S. firms doing business abroad report sizable payments to non- U. S. citizens to the Justice Department.
d. Publicly held companies devise and maintain an adequate system of internal accounting control.

7. Establishing and maintaining a system of internal accounting control is the primary responsibility of
a. Management and the Board of Directors.
b. The internal auditor.
c. The external auditor.
d. A financial analyst.
e. The data processing manager.