Question

If the activity presents an internal control risk, identify the control that is missing and explain why. If the activity does not present an internal control risk, identify the control that is being properly used and explain why. (Physical controls, Assignment of responsibilities, Separation of duties, Independent verification,Documentation)

1.The company's buyers are responsible for ordering furniture, receiving orders in the warehouse and paying suppliers.

2.When employees at the store check-in at the store's POS system, they need to enter the employee's password. For simplicity, the password used by each employee is their last name

3.Each inventory item is recorded in the POS system of the store. When the new store clerk Paul entered one of the five different frames sold, he entered the same codes for all five frames because they were the same price, and entering five separate codes required more time.

4.When receiving the cash receipt on the account by mail, the mail delivery room will directly send it to the company's accountant. The accountant records the cash receipt in the accounting record and deposits the cash in the bank.

5.The manager of the store conducts an internal audit every month.

Answer 1

1. The given situation presents the lack of Internal control of Separation of Duties. There must be separation of duties while ordering a product. A buyer is only responsible for ordering furniture and paying suppliers. He has nothing to do with receiving orders at warehouse. There must be separate department performing this task.

2. This case involves the lack of internal physical control. Though the company have passwords to access their POS system, but the surnames of many employees can be used by other employees to leak data as they are not unique. This leads to a lack in physical control over data.

3. The control measure that is missing in this situation is Independent verification. Items having different characteristics or qualities must be provided different codes in order to easy verification while selling them and searching for them. Providing same codes to different product will lead to creation of chaos.

4. There is an internal control by Proper Documentation in this case. Each step includes proper and verified documents thus helping in easy recording of the transactions, which helps in smooth functioning of the company.

5. Internal audit must be performed by a specially employed person to conduct internal audit, independent of the working of the firm, thus, audit by the manager of the store simply lacks the control of proper Assignment of responsibilities.