Question

After several months, HRC's materials/crew manager is arrested for having $20,000 of materials delivered to his home but charged to the company. Identify the internal control weakness that allowed this theft to occur.

a. The materials/crew manager's order should have been verified by the department head.
b. A copy of the purchase order was not sent to the repair site.
c. There was no way to independently verify that amounts charged by suppliers were for goods that had been delivered to authorized work sites.
d. Purchase orders were not prepared on the basis of prenumbered requisition forms.

Answer 1

The theft occurred because of a lack of independent verification of deliveries to authorized sites. It shows the need for strong internal controls such as segregating duties and regular reconciliation processes within a company.

Step-by-step explanation:

The internal control weakness that allowed theft to occur in the scenario provided is the lack of independent verification that materials were delivered to authorized work sites. In this case, the materials/crew manager was able to have $20,000 of materials delivered to his home and charged to the company without detection. This points towards a broader internal control issue, where there was no effective mechanism to independently confirm that goods charged by suppliers were actually delivered to the correct location.

Internal controls such as segregating duties, whereby ordering and receiving are handled by different individuals or departments, can prevent such occurrences. Additionally, procedures should be in place for routine audits and reconciliations that would catch discrepancies between orders and deliveries.

Noel's experience with noticing a potential $250,000 overpayment underscores the need for attentive and responsive communication channels within a company, which act as a safeguard against financial errors and potential fraud.