Question

All-Around Sound Co. discovered a fraud whereby one of its front office administrative em- ployees used company funds to purchase goods, such as computers, digital cameras, and other electronic items for her own use. The fraud was discovered when employees noticed an increase in delivery frequency from vendors and the use of unusual vendors. After some investigation, it was discovered that the employee would alter the description or change the quantity on an invoice in order to explain the cost on the bill.

What general internal control weaknesses?

Answer 1

The internal control weaknesses include inadequate segregation of duties, lack of proper authorization procedures, insufficient monitoring, and inadequate documentation and record keeping. These weaknesses facilitated the opportunity for the employee to commit and conceal fraud within the company.

Step-by-step explanation:

The general internal control weaknesses that could be inferred from All-Around Sound Co. discovery include inadequate segregation of duties, lack of proper authorization procedures, insufficient monitoring, and inadequate documentation and record keeping. A system where checks and balances are not properly in place allows for the opportunity of fraud to arise.

Segregation of Duties

Inadequate segregation of duties can allow an employee to perpetrate and conceal irregularities, in this case, altering invoice details without detection. This is because the same employee who is responsible for processing orders may also have access to the vendor's selection and invoicing details.

Authorization Procedures

Lack of proper authorization procedures implies that transactions can be made, in this instance, ordering goods, without the necessary checks to confirm the validity and necessity of the purchase.

Monitoring

Insufficient monitoring practices mean that unusual increases in orders and deliveries can go unnoticed, or that there's a failure to verify the authenticity and regularity of the vendors being used.

Documentation and Record Keeping

Finally, inadequate documentation and record keeping can complicate the detection of fraudulent activities, as false entries may be made without leaving a clear audit trail.

Answer 2

Explanation: What are internal controls? Internal controls are the process and procedures put in place by an organisation to control the way things are done. It is a Management process whereby measures are put in place to control the way things are done to avoid fraud by the employees.

Internal controls include : Separation of duties especially between the accounts and procurement dept. That is the procurement department is to make the request for the items needed and the accounts department makes the order and pay for the order while the delivery will be made to the procurement dept and invoice and delivery note will be sent back to the accounts depart for confirmation and filing.

From the above question, the internal control weakness are that it is only one employed that makes a request, order for the requested items, negotiate the price and receives the order from the supplier. There is no internal control measure put in place in the company.