Each of the following independent situations has one or more internal control weaknesses:

1. Board Riders is a small snowboarding club that offers specialized coaching for teenagers who want to improve their skills. Group lessons are offered every day. Members who want a lesson pay a $15 fee directly to the teacher at the start of the lesson that day. Most members pay cash. At the end of the lesson, the teacher reports the number of students and turns over the cash to the office manager.

2. Coloroso Agency offers parenting advice to young single mothers. Most of the agency's revenues are from government grants. The general manager is responsible for all of the accounting work, including approving invoices for payment, preparing and posting all entries into the accounting system, and preparing bank reconciliations.

3. At Nexus Company, each salesperson is responsible for deciding on the correct credit policies for his or her customers. For example, the salesperson decides if Nexus should sell to the customer on credit and how high the credit limit should be. Salespeople receive a commission based on their sales.

4. Algorithm Company is a soft ware company that employs many computer programmers. The company uses accounting soft ware that was created by one of the employees. In order to be more flexible and share the workload, all of the programmers have access to the accounting soft ware program in case changes are needed.

5. The warehouse manager at Orange Wing distributors is well known for running an efficient, cost-saving operation.

He has eliminated the requirement for staff to create receiving reports and purchase orders because it was taking staff too long to prepare them.

Instructions

(a) Identify the internal control weaknesses in each situation.

(b) Explain the problems that could occur as a result of these weaknesses.

Taking It Further

Make recommendations for correcting each situation?