You have been assigned to the examination of the "investments" account of one of your firm's older clients, the \(D\) Co. During the prior year, your client received more than \(\$ 1\) million from the sale of all of its stock in a subsidiary. The proceeds from this sale were promptly invested in time certificates of deposit (CDs) having various maturities. More than one year has elapsed since the sale of the stock, and your client continues to invest the funds in CDs. Investment decisions are made by the company treasurer, who also is responsible for custody of the CDs.
During the current year, the \(D\) 's treasurer obtained \(\$ 100,000\) frorn the surrender of a CD at maturity and invested the proceeds in another sixmonth certificate having an interest rate of 10 percent. This transaction was recorded on the books of the company as being for a CD bearing an interest rate of 8 percent. At the end of the six months, the treasurer redeemed this CD for its \(\$ 105,000\) maturity value. On the books of the company, the transaction was recorded as having been for \(\$ 104,000\), and the treasurer deposited that amount in the company's bank account prior to reinvesting the proceeds in another security.
Required:

a. What internal controls could have prevented or permitted detection of the treasurer's action?

b. What audit procedures could you perform to discover this irregularity?