Question

1. What internal control procedure(s) would provide protection against the following threats/exposures? (10 marks of a 100 marks paper)

   1. Theft of goods by the warehouse workers, who claim that the inventory shortages reflect errors in the inventory records.

   2. Writing off a customer’s accounts receivable balance as uncollectible to conceal the theft of subsequent cash payments from that customer.

   3. Theft of cheques by the mailroom clerk, who then endorsed the cheques for deposit into the clerk’s personal bank account.

   4. Theft of funds by the cashier at Cash Receipts, who cashed several cheques from customers.

   5. A sales clerk sold a $7,000 wide-screen TV to a friend and altered the price to $700.

Answer 1

1) Thefts of goods by the warehouse workers -  

Inventory clerks should count and document goods as they leave inventory storage. Shipping personnel should be required to count and document receipt of goods from the finished goods storeroom to acknowledge responsibility for custody of the goods transferred.

Counting goods when they are received and when they are sent to inventory storage as well as when goods leave inventory storage and are sent to shipping helps maintain control over inventory. Reconciling the two sets makes it more difficult for employees to steal inventory as it is received and shipped.

2) Writing of a customer's account -

The problem usually occurs because the same individual writes off accounts and do cash payments. Therefore, the best control procedure to prevent this problem is to separate the function of write-off of uncollectible accounts from the function of handling collections on account.

3) Theft of cheques by the mailroom worker -

For this, the mailroom clerk should change the accounts receivable records. Otherwise, a customer who is continuously providing that they are past due will complain and provide proof that they sent in payment. Therefore, the critical control is to distribute the duties so that whoever opens the mail does not have the ability to maintain customer accounts.

4) Theft of funds by the cashier-

For this theft, the cashier should to alter the accounts receivable records. Otherwise, a customer who is continuously providing that they are past due will complain and provide proof that they sent in payment. Therefore, the critical control is to divide the duties of handling cash and making deposits from the maintenance of accounts receivable records.

5) A sales clerk sold a wide screen TV -

To prevent this the owner should -:

a) Use of barcodes and RFID tags to identify the product and its sales price.

b) All product prices and sales discounts should be maintained in the system.

c) Supervisor approvals must for any needed changes or discounts to the listed price.