Listed below are

(a) four potential errors or problems that could occur in the processing of cash transactions and

(b) internal control principles. Review each error or problem and identify an internal control principle that could reduce the chance of the error or problem occurring. You may also cite more than one principle if more than one applies, or write none if none of the principles will correct the error or problem.

1. An employee steals cash collected from a customer's accounts receivable and hides the theft by issuing a credit memorandum indicating the customer returned the merchandise.

2. An official with authority to sign checks is able to steal blank checks and issue them without detection.

3. Due to a labor shortage many employees are hired without sufficient skills with the thought they can "learn on the job."

4. A salesperson often rings up a sale for less than the actual amount and then pockets the additional cash collected from the customer.

Internal control principles:

a. Establish clear lines of authority and responsibility.

b. Segregation of duties.

c. Hire competent personnel.

d. Use control numbers on all business documents.

e. Develop plans and budgets.

f. Maintain adequate accounting records.

g. Provide physical and electronic controls.

h. Conduct internal audits.