#2: Internal controls issues

You have been hired as a consultant to help address possible concerns regarding various lines of business. Below you will find scenarios where you need to document:

1) What the concern might be;

2) How would you go about performing an audit in this area (i.e. your job is to uncover any possible issue); and

3) Your recommendation on how to solve/change the process.

1. An individual within upper management wants to be included in all discussion that take place on day to day functions of the business.

2. You walk around the parking lot and notice a vehicle that costs over $150K.

3. The building that you are working in has badge only access to each floor. It is common in the morning to have 10+ individuals get on the elevators. Once you are in the elevator you can go to any floor.

4. You overhear a conversation that an employee has real resentment towards her supervisor. This employee is in charge of A/R.

5. Its company policy to change a password every 15 days. Passwords require very unique characters and cant include any dictionary words. You know that employees hate this.

6. Employee is in charge of A/R write offs, bank statement reconciliation, and handling and opening mail.

7. As part of your test work you are required to perform a control walkthrough of campus food services. When you go to perform the control walkthrough, the owner is very vulgar and wont help you.

8. As part of your audit you are require to determine all sources of cash receipting on the campus. One area on campus is in a faraway location and you can see on the books that they only received 1 cash receipting transaction this past year.

9. The company has an in house doctor. When visiting the office, the patient will fill out the form that documents the issues they have. The company then bills based upon that individual form.

10. The main accountant performs bank deposits at the local bank of which the bank president is the spouse of the accountant.

11. It is common practice to utilize company equipment for personal use.

12. The company accountant prepares the A/R conformation letters for the auditors and personally mails them.

13. To ensure errors dont occur, management has the ability to override any control.

14. The auditor is told that the bank is extremely busy at the moment and sending confirmation to the bank for balance confirmation isnt possible. But no worry, the accountant can print the statements off for you.

15. Three people handle cash sales from the same cash register drawer.

16. A clothing store is experiencing a high level of inventory shortages because people try on clothing and walk out of the store without paying for the merchandise.

17. The treasurer of the company has not taken a vacation for over 5 years.

18. Business is slow on Tuesday and Wednesday and the business decides not to use a ticket taker on those nights. The ticket seller (cashier) is told to keep the tickets as a record of the number sold.

19. The same trusted employee has served as cashier for 12 years.

20. When business is brisk, deposits of cash are made at the bank several times during the day. The manager at one store wants to reduce the time employees spend delivering cash to the bank, so he starts a new policy. Cash will build up over weekends, and the total will be deposited on Monday.

21. Grocery stores such as Convenience Market and Natural Foods purchase most merchandise from a single supplier.

22. At another grocery store, the manager decides to reduce paperwork. He eliminates the requirement that the receiving department prepare a receiving report listing the goods actually received from the supplier.

23. While reviewing the records, you find that the same employee orders merchandise and approves invoices for payment.