Question

Every year, Jessica Gomez, CEO of Logan Construction Company, takes a two week vacation to Barbados and signs multiple blank checks to pay for any major bills that come due while she is away. Jessica's vacation occurs towards the end of Logan's fiscal year. Carl Johnson, controller for the company, uses this practice for his gain. He identifies a very large invoice from a vendor, makes out a check to himself for that amount, and records it as a payment to the vendor for acquisition of supplies. He holds the check for several weeks to ensure the auditors will not review the canceled check. Not long after the first of the year, Johnson resubmits the invoice to Gomez for approval and records the check in the cash disbursements journal. Johnson then marks the invoice as paid and files away with other paid invoices. Johnson has been performing this activity many years and believes he has no risk of getting caught.

Required:

There are so many opportunities for improvement in the internal controls in this scenario. With an unlimited amount of funds, many people, and an unlimited time frame, a company could virtually eliminate all control risk. Practically speaking, though, that is not feasible for 95%+ of all companies. Small companies like Logan Construction especially struggle with control risk in the areas of acquisition and financing because they operate with minimal staffing, restrictive budgets, and a remote workforce.

If you were consulting with Logan Construction on internal control improvement opportunities, provide two short term suggestions for controls improvement, and one long term suggestion that the company might need to plan for financially or technologically

Answer 1

Answer:-

Here CEO Jessica Gomez, can get extraordinary checks from her Bankers of a greatest utmost, say $ 1,000/ - , as these checks can be issues just for little installments in her nonattendance, she can avoide real cheats.

Concerning any real installments, the installments terms can be consulted with sellers and credit term can be asked.

As CEO Jessica Gomez, goes on get-aways for shorter lengths, she can forward a progress to her Finance Controller for meeting any crisis installments, and she can take a report of such use from her FC when she is back.

Additionally CEO Jessica Gomez can audit the Vendor payables maturing report before taking some time off, and she can plan post dated chques for any payables which will wind up due amid her nonappearance, rather than issuing limitless tickets to ride.

Long term Suggestion:-

Introduce a payable's product (Like SAP ERP) which ought to be connected to your Accounting programming and also bank entrances.

Bank points of interest of every last merchant ought to be refreshed in the product.

Start installments just through such programming and quit issuing checks or manual installment handling.

Relegate Multiple signatories for approving installments. Approved signatories ought to be intermittently checked on and refreshed.