Each of the following situations has an internal control weakness.
a. Upside – Down Applications develops custom programs to customer’s specifications. Recently, development of a new program stopped while the programmers redesigned Upside – Down’s accounting system. Upside – Down’s accountants could have performed this task.
b. Norma Rottler has been your trusted employee for 24 years. She performs all cash-handling and accounting duties. Ms. Rottler just purchased a new Lexus and a new home in an expensive suburb. As owner of the company, you wonder how she can afford these luxuries because you pay her only $30,000 a year and she has no source of outside income.
c. Izzie Hardwoods, a private company, falsified sales and inventory figures in order to get an important loan. The loan went through, but Izzie later went bankrupt and could not repay the bank.
d. The office supply company where Pet Grooming Goods purchases sales receipts recently notified Pet Grooming Goods that its documents were not pre-numbered. Howard Mustro, the owner, replied that he never uses receipt numbers.
e. Discount stores such as Cusco make most of their sales for cash, with the remainder in credit-card sales. To reduce expenses, one store manager ceases purchasing fidelity bonds on the cashiers.
f. Cornelius’ Corndogs keeps all cash receipts in an empty bread box for a week, because he likes to go to the bank on Tuesdays when Joann is working.
Requirements
1. Identify the missing internal control characteristics in each situation.
2. Identify the possible problem caused by each control weakness.
3. Propose a solution to each internal control problem.