Question

Accounting Information Systems

Holder Co. maintains a large fleet of automobiles, trucks, and vans for their service and sales force. Supervisors in the various departments maintain the fixed asset records for these vehicles, including routine maintenance, repairs, and mileage information. This information is periodically submitted to the fixed asset department, which uses it to calculate depreciation on the vehicle. To ensure a reliable fleet, the company disposes of vehicles when they accumulate 80,000 miles of service. Depending on usage, some vehicles reach this point sooner than others. When a vehicle reaches 80,000 miles, the supervisor is authorized to use it in trade for a new replacement vehicle or to sell it privately. Employees of the company are given the first option to bid on the retired vehicles. Upon disposal of the vehicle, the supervisor submits a disposal report to the fixed asset department, which writes off the asset.

Required

Discuss the potential for abuse and fraud in this system. Describe the controls that should be implemented to reduce the risks.

Answer 1

In the given case, the supervisor who supervises the assets is the one who maintains the books of accounts of the assets. Internal chack is not present in the controls. The supervisor may collude with employees and write off the assets even before it accumulates 80000 miles of service..

In order to implement control, the supervisor should not maintain books of accounts and it is to be handed to another independent person, so that the newly appointed person would check the work of the supervisor and record the amounts related to assets in the books