The attention of many accountants was directed to internal controls by newspaper reports of a certain major case of fraud that happened in a company quite a few months ago. A considerable sum was extracted by the cashier, who prepared checks for legitimate suppliers and supported them by canceled invoices, purchase requisitions, and purchase orders, and then forged the names of those authorized to approve these documents. He also placed the receiving department stamp on the purchase order and inserted information to indicate that the material had been received. The checks and the supporting documents were entered by members of the accounting department in the voucher distribution record and charged to inventory. The cashier then presented these checks, with all supporting documents, for signature and countersignature by company executives. The checks were returned to the cashier who was supposed to mail them. Instead, the checks were torn up and the supporting documents went to their respective files. The cashier then proceeded to prepare other checks under fictitious company names. These checks were made out in different amounts, but aggregated to the same total. The checks, with all of the forged supporting documents, then were presented to the executives for signature and returned to the cashier, who tore up the supporting documents and took over the checks himself. All of the checks were returned directly to the cashier who prepared the bank reconciliation.

What can we learn from such a case? At first glance we might get upset and start reviewing our own procedures to install all of the internal checks and controls of which we had ever heard. In connection with accounts payable, we might see to it that:

1. Purchase requisitions are properly prepared by the departments using the goods or services with the authority to purchase.

2. Proper bidding procedures and approvals are set up, and that all invoices flow through the purchasing department for approval on prices and terms.

3. Copies of the purchase orders are furnished to personnel at the receiving docks, giving them the authority to receive goods and to check quantity and quality.

4. Invoices entered for payment are properly approved for prices, terms, distribution, and receipt of material.

5. Checks are presented to both the signer and the countersigner with all of the supporting documents attached.

But all of these things were done in the case mentioned. Many of the "trimmings" of internal control were present, but the heart of internal control was absent. It is, of course, recognized that the greatest feasible segregation of duties is desirable. With that in mind, the really important requirements of the internal control by the accounting department over accounts payable should recognize which basic principles?