Question

1. Bill Smith is a trusted employee working in a branch of BCC Technical Inc. a computer services company. She has various responsibilities which include:
   1. Selecting and maintaining vendors who provide services and products to the company
   2. Preparing the monthly bank reconciliations for supervisory review
   3. Write checks for company expenditures. To promote efficiency if the expenditure is less than $1,500 it does not require the approval of a supervisor.
   4. Works with another employee to maintain the inventory of office supplies.

Required

Briefly discuss some internal control issues identify any weakness (exposures) and strengths surrounding the role of Bill Smith. Use appropriate terminology from our class discussions and readings that would applicable to the discussion of internal controls.

Answer 1

Following are the issues which could cause fraud in BCC Technical Inc:

Issue 1: NO regulation on Vendor selection process.

The entire responsibility to select the vendors has been given to Bill. This is major risk because he may select vendors who are favorable to him instead of the company.

Eg: Bill may select a vendor who is his friend or a relative instead of choosing a vendor based on their product quality,price,vendor reputation etc.

Issue 2: NO regulation on writing checks below $ 1500

$ 1500 appears to be a small amount for a single transaction.However,there is always a risk that bill manipulates this by creating false invoice and pocketing small amounts on daily basis. To mitigate this risk, there has to be timely checks on expenses incurred below $ 1500 by a manager,

Issure 3: Lack of Clarity on responsibility to maintain office supplies

There has to be clear responsibility assigned with respect to maintenance of office supplies. Lack of clarity would lead to a risk of collusion between Bill and other employee stealing office supplies. To mitigate this issue, it is advised that one employee maintains the office supplies and the other keeps a check on its consumption records. The risk of collusion decreases when clear responsibilities are assigned.

Strength: Review of Supervisor for Bank Reconciliation

As the monthly reconciliation is prepared and same is reviewed by Supervisor, it is strength for the company.