The following questions concern internal controls in the acquisition and payment cycle. Choose the best response.

a. Effective internal control over the purchasing of raw materials should usually include all of the following procedures except

(1) systematic reporting of product changes that will affect raw materials.

(2) determining the need for raw materials prior to preparing the purchase order.

(3) obtaining third-party, written quality and quantity reports prior to payment for the raw materials.

(4) obtaining financial approval prior to making a commitment.

b. Budd, the purchasing agent of Fake Hardware Wholesalers Ftd., has a relative who owns a retail hardware store. Budd arranged for hardware to be delivered by manufacturers to the retail store on a COD basis, thereby enabling his relative to buy at Fake's wholesale prices. Budd was probably able to accomplish this because of Fake's poor internal control over

(1) purchase orders.

(2) purchase requisitions.

(3) cash receipts.

(4) perpetual inventory records.

c. Which of the following is an internal control that would prevent paid disbursement documents from being presented for payment a second time?

(1) The date on cash disbursement documents should be within a few days of the date that the document is presented for payment.

(2) Unsigned cheques should be prepared by individuals who are responsible for signing cheques.

(3) Cash disbursement documents should be approved by at least two responsible management officials.

(4) The official signing the cheque should compare the cheque with the documents and should deface the documents.

(AICPA adapted)