1. A local bank reported that it lost $150,000 as the result of an employee fraud. Ray Fairburn is not clear on what is meant by an employee fraud. Explain the meaning of fraud to Ray and give an example of a fraud that might occur at a bank.

2. Fraud experts often say that there are three primary factors that contribute to employee fraud. Identify the three factors and explain what is meant by each.

3. Identify the five components of a good internal control system.

4. Internal control is concerned only with enhancing the accuracy of the accounting records. Explain why this statement is true or false.

5. Discuss how the Sarbanes-Oxley Act has increased the importance of internal control to top managers of a company.

6. What principles of internal control apply to most businesses?

7. In the corner grocery store, all sales clerks make change out of one cash register drawer. Is this a violation of internal control? Why?

8. Branden Doyle is reviewing the principle of segregation of duties. What are the two common applications of this principle?

9. How do documentation procedures contribute to good internal control?

10. What internal control objectives are met by physical controls?

11. (a) Explain the control principle of independent internal verification. (b) What practices are important in applying this principle?

12. The management of Ortiz Company asks you, the company accountant, to explain (a) the concept of reasonable assurance in internal control and (b) the importance of the human factor in internal control.

13. What principle(s) of internal control is (are) involved in making daily cash counts of over-the-counter receipts?

14. Assume that Kohls installed new electronic cash registers in its department stores. How do cash registers improve internal control over cash receipts?

15. At Lazlo Wholesale Company, two mail clerks open all mail receipts. How does this strengthen internal control?

16. To have maximum effective internal control over cash disbursements, all payments should be made by check. Explain why this statement is true or false.

17. Pauli Companys internal controls over cash disbursements provide for the treasurer to sign checks imprinted by a checkwriter after comparing the check with the approved invoice. Identify the internal control principles that are present in these controls.

18. Explain how these principles apply to cash disbursements: (a) physical controls, and (b) human resource controls.

19. (a) What is a voucher system? (b) What principles of internal control apply to a voucher system?

20. What is the essential feature of an electronic funds transfer (EFT) procedure?

21. (a) Identify the three activities that pertain to a petty cash fund, and indicate an internal control principle that is applicable to each activity. (b) When are journal entries required in the operation of a petty cash fund?

22. The use of a bank contributes significantly to good internal control over cash. Explain why this statement is true or false.

23. Hank Cook is confused about the lack of agreement between the cash balance per books and the balance per bank. Explain the causes for the lack of agreement to Hank, and give an example of each cause.

24. Trisha Massey asks for your help concerning an NSF check. Explain to Trisha (a) what an NSF check is, (b) how it is treated in a bank reconciliation, and (c) whether it will require an adjusting entry.

25.

Describe cash equivalents and explain how they are reported. How should restricted cash funds be reported on the balance sheet?

26. Robbins Inc. owns the following assets at the balance sheet date.

Cash in banksavings account $8,000

Cash on hand 1,100

Cash refund due from the IRS 1,000

Checking account balance 12,000

What amount should be reported as Cash in the balance sheet?