Question

1. The following are errors or fraud and other irregularities that have occurred in Fresh Foods Grocery Store Ltd., a wholesale and retail grocery company.

   1. The incorrect price was used on sales invoices for billing shipments to customers because the incorrect price was entered into a computer file.

   2. A vendor’s invoice was paid twice for the same shipment. The second payment arose because the vendor sent a duplicate copy of the original two weeks after the payment was due.

   3. Employees in the receiving department stole some sides of beef. When a shipment of meat was received, the receiving department filled out a receiving report and forwarded it to the accounting department for the amount of goods actually received. At that time, two sides of beef were put in an employee’s pickup truck rather than in the storage freezer.

   4. During the physical count of inventory of the retail grocery, one counter wrote down the wrong description of several products and miscounted the quantity.

   5. A salesperson sold several hundred kilograms of lamb at a price below cost because she did not know that the cost of lamb had increased in the past week.

   6. On the last day of the year, a truckload of beef was set aside for shipment but was not shipped. Because it was still on hand, it was counted as inventory. The shipping document was dated the last day of the year, so it was also included as a current-year sale.

Required

1. For each error or fraud and other irregularity, identify one or more types of controls that were absent.

2. For each error or fraud and other irregularity, identify the objectives that have not been met.

3. For each error or fraud and other irregularity, suggest a control to correct the deficiency.

Answer 1

Errors or fraud and other irregularities:

The incorrect price was used on sales invoices for billing shipments to customers because the incorrect price was entered into a computer file.

A. CONTROLS THAT ARE ABSENT:

The prices of goods must be entered by the person who has the authority for the same to enter,and it must be checked by other person which is at higher level should verify it before entering.

B. The Objectives that have not been met:

The objective of the billing department is to do proper and accurate billing and there must be not any overcharge or undercharge from any customer.

in above case from customer the invoice is wrongly created and charged the same so the above objective is not met.

C. A Control to correct the deficiency:

There must be a proper check on the person who enter the master data of prices in the erp,

it should be entered in erp only after the verification that prices that are to be entered in the erp is correct and accurate.

A vendor’s invoice was paid twice for the same shipment. The second payment arose because the vendor sent a duplicate copy of the original two weeks after the payment was due:

A.CONTROLS THAT ARE ABSENT:

The control that is absent is that once the payment of any invoice no. is done it should not be paid again it should be entered in erp that for that invoice payment is already made.

B. The Objectives that have not been met:

The objective is to do payment of such invoices which has to be paid, but in the above case payment for such bill is made which is already paid , so the objective is not meet by the erp.

C. A Control to correct the deficiency:

There must be segregation of duties all the power should not be in the hands of the one man,there must be one person for approval and one for doing payment and handling the cash.

Employees in the receiving department stole some sides of beef. When a shipment of meat was received, the receiving department filled out a receiving report and forwarded it to the accounting department for the amount of goods actually received. At that time, two sides of beef were put in an employee’s pickup truck rather than in the storage freezer.

A.CONTROLS THAT ARE ABSENT:

SECURITY GUARDS on the gate must be there which must check all the outgoings and incomings in the company this control is absent.

B. The Objectives that have not been met:

The objective is to made payment for the shipment actually received in the company not for the shipment which is used by the personnel for their personal use.

C. A Control to correct the deficiency:

INSPECTION,before approval of any bill there must be proper approval that the goods are properly stored for which bill has been raised after that bill should be approved.

During the physical count of inventory of the retail grocery, one counter wrote down the wrong description of several products and miscounted the quantity.

A.CONTROLS THAT ARE ABSENT:

There must be proper cross check of the quantity counted by the person,this control is absent in above situation.

B. The Objectives that have not been met:

The objective of physical count is that there is no discrepancy in records made by the accounts department but if the count is wrong then the above objective cannot be fulfilled.

C. A Control to correct the deficiency:

COMPETENT PERSONNEL, the count should be done by the personnel who is fully competent for such count.

A salesperson sold several hundred kilograms of lamb at a price below cost because she did not know that the cost of lamb had increased in the past week.

A.CONTROLS THAT ARE ABSENT:

There is a communication gap between cost department and accounts department .

B. The Objectives that have not been met:

The objective is to make profits but the sale is made under cost price so the objective is not met.

C. A Control to correct the deficiency:

There must be a proper communication channel that all the information flows quickly between departments for early actions.

On the last day of the year, a truckload of beef was set aside for shipment but was not shipped. Because it was still on hand, it was counted as inventory. The shipping document was dated the last day of the year, so it was also included as a current-year sale.

A.CONTROLS THAT ARE ABSENT:

PROPER CHECK, there must be proper check on the count of inventory the goods which are sold should not be included in the count.

B. The Objectives that have not been met:

The objective of physical count is that there is no discrepancy in records made by the accounts department but if the count is wrong then the above objective cannot be fulfilled.

C. A Control to correct the deficiency:

The sold goods must be tagged with that these goods has been sold so that it should not be counted during the physical count of goods.