Question

Identifying internal controls Consider each situation separately. Identify the missing internal control procedure from these characteristics: • Assignment of responsibilities • Separation of duties • Audits • Electronic devices • Other controls (specify)

a. While reviewing the records of Quality Pharmacy, you find that the same employee orders merchandise and approves invoices for payment.
b. Business is slow at Amazing Amusement Park on Tuesday, Wednesday, and Thursday nights. To reduce expenses, the business decides not to use a ticket taker on those nights. The ticket seller (cashier) is told to keep the tickets as a record of the number sold.
c. The same trusted employee has served as cashier for 12 years.
d. When business is brisk, Fast Mart deposits cash in the bank several times during the day. The manager at one store wants to reduce the time employees spend deliv- ering cash to the bank, so he starts a new policy. Cash will build up over weekends, and the total will be deposited on Monday.
e. Grocery stores such as Convenience Market and Natural Foods purchase most! merchandise from a few suppliers. At another grocery store, the manager decides to reduce paperwork. He eliminates the requirement that the receiving department prepare a receiving report listing the goods actually received from the supplier

Answer 1

Following are the characteristics related to the situations:

a. Separation of duties

b. Other controls (specify)

c. Other controls (specify)

d. Other controls (specify)

e. Assignment of responsibilities

Step-by-step explanation:

a. The missing internal control procedure is the "Separation of duties." Combining the responsibilities of ordering merchandise and approving invoices for payment increases the risk of fraud or errors, as there is no segregation of duties between these critical functions.

b. In this case, the missing internal control falls under "Other controls (specify)." Operating without a ticket taker and solely relying on the cashier to keep ticket records on specific nights might pose a security and accuracy risk. Implementing alternative control measures, such as surveillance or random audits, could mitigate these risks.

c. The absence of specific internal controls here falls under "Other controls (specify)." While the employee's long tenure may suggest trustworthiness, continuous employment without periodic rotation or mandatory vacations may increase the potential for fraud or irregularities.

d. The inadequate internal control measure pertains to "Other controls (specify)." Allowing cash to accumulate over weekends before depositing it on Monday poses a risk of loss due to theft or mishandling. Implementing secure storage or more frequent deposits could address this risk.

e. The missing internal control is "Assignment of responsibilities." Eliminating the requirement for the receiving department to prepare receiving reports can lead to inventory discrepancies and hinder accurate tracking of goods received. Assigning specific responsibilities ensures proper documentation and oversight in the inventory management process.