Question

Complete the following sentences relating to internal controls: The employee in charge of paying vendor invoices is also in charge of reconciling the bank account. This is an example of _____________.

Payroll checks are distributed to employees by someone without payroll duties. This is an example of ____________.

Vendor contracts are reviewed by the purchasing department. The purchasing agent currently in the position has not been trained. This is an example of ______________.

The billing clerk opens the mail, deposits checks received and posts customer payments to the A/R ledger. This is an example of ____________.

A deficiency in design

An effective internal control procedure

A deficiency in operation

Answer 1

1) A deficiency in design or operation

A company should not give both the responsibilities to the same employees, it should be given to different employees for avoiding the fraud or misstatement in the accounts of the company.

2) An effective internal control procedure

A employee distributing payroll checks who do not have any duty relating to the payroll checks is an effective internal control procedure as it will assure that the employee will not make any fraud or misstatement about the payroll checks.

3) A deficiency in design or operation

Company appointing someone without enough knowledge or training will result in misstatement as the GAAP have given the outline of employing someone with enough knowledge or training for the operation.

4) An effective internal control procedure

The billing clerk has the responsibility of representing the accounts receivable which is received by the customer as a payment for the sales and to keep the track of the payments made towards the company. The billing clerk is well trained in handling his duties. This will not result in misstatement or fraud.