Question

Problem 6-1A Analyzing internal control LO C1 O C1 Following are five separate cases involving internal control issues. Required: 1. For each case, identify the principle(s) of internal control that is violated. a. Chi Han receives all incoming customer cash receipts for her employer and posts the customer payments to their respective accounts. ____b. At Tico Company, Julia and Trevor alternate lunch hours. Julia is the petty cash custodian, but if someone needs petty cash when she is at lunch, Trevor fills in as custodian. ____c. Nori Nozumi posts all patient charges and payments at the Hopeville Medical Clinic. Each night Nori backs up the computerized accounting system but does not password lock her computer ____d. Ben Shales prides himself on hiring quality workers who require little supervision. As office manager, Ben gives his employees full discretion over their tasks and for years has seen no reason to perform independent reviews of their work. ____e. Carta Farah's manager has told her to reduce costs. Carla decides to raise the deductible on the plant's property insurance from $5,000 to $10,000. This cuts the property insurance premium in half. In en related move, she decides that bonding the plant's employees is a waste of money because the company has not experienced any losses due to employee theft. Carla saves the entire amount of the bonding Insurance premium by dropping the bonding Insurance. ____

Answer 1

The cases involve violations of internal control principles such as segregation of duties, establishing responsibilities, physical controls, independent internal verification, and protecting assets. Each action by employees showcases a different principle being overlooked or ignored, thereby increasing the risk of errors or fraud within the company.

Step-by-step explanation:

In the problem provided, there are several cases where internal control principles are violated:

1. a. Chi Han’s case violates the internal control principle of segregation of duties. Since she receives all incoming cash receipts and posts the customer payments to their respective accounts, there is no separation between the custody of assets and the accounting for assets, which increases the risk of errors or fraud.
2. b. At Tico Company, the issue with Julia and Trevor alternating as petty cash custodians violates the principle of establishing responsibilities. There should be a single person responsible for the petty cash to maintain control and minimize the potential for misuse of funds.
3. c. Nori Nozumi’s practice at the Hopeville Medical Clinic violates the physical control principle. By not password locking her computer and the accounting system, she fails to protect records from unauthorized access and potential tampering.
4. d. Ben Shales neglects the principle of independent internal verification. By not conducting reviews of his employees’ work, there is no verification process to catch potential errors or misconduct.
5. e. Carta Farah’s actions at her plant violate the principle of protecting assets through insurance and bonding. By raising the insurance deductible and foregoing bonding, the company is exposed to higher risks of loss which might not be mitigated by the cost savings.