Question

Problem 7-1B Principles of internal control

For the following five scenarios, identify the principle of internal control that is violated. Next, recommend what the business should do to ensure adherence to principles of internal control.

1. Tamerick Company is a fairly small organization but has segregated the duties of cash receipts and cash disbursements. However, the employee responsible for cash disbursements also reconciles the bank account monthly.

2. Stan Spencer is the most computer literate employee in his company. His boss has recently asked him to put password protection on all the office computers. Stan's main job at the company is to process payroll. Stan has put a password in place that now allows only his boss access to the file where pay rates are changed and personnel is added or deleted from the company payroll.

3. Starlight Theatre has a computerized order-taking system for its tickets. The system is active all week and backed up every Friday night.

4. Trek There Company has two employees handling acquisitions of inventory. One employee places purchase orders and pays vendors. The second employee receives the merchandise.

5. The owner of Holiday Helper uses a cheque protector to perforate cheques, making it difficult for anyone to alter the amount of the cheque. The cheque protector sits on the owner's desk in an office that houses company cheques and is often unlocked.

Answer 1

Internal control principles are designed to prevent occurance of fraud. Given are the cases of violation of following principles.

1. Segregation of Duties has been violated

Separation of roles has been done, however the szame is not being followed in the organisation.

2. Access Control

Unnecessary access control has been granted to the boss, also putting password will not give access to the employee concern for doing his job.

3. Standardized Documentation

The proper recording with no backup every day may lead to the loss of data.

5. Approval Authority

Such authority shall only be reside with the owner & keeping it unlock all the time would lead anyone make illegal use of such tool.