20. Each of the following situations has an internal control weakness. (Click the icon to view the situations.) 2 (Click the icon to view the possible problems.) Read the requirements? Req. 2 Req.3 Req. 1 Missing Internal Possible Control Characteristic Problem Solution a. (1) (2) (3) (4) b. (5) (6) C. (8) (9) (10) d. (11) (12) (13) e. (14) (15) (16) f. (17) (18) (19) 1: More Info a. Upside-Down Applications develops custom programs to customer's specifications. Recently, development of a new program stopped while the programmers redesigned Upside-Down's accounting system. Upside-Down's accountants could have performed this task. b. Norma Rottler has been your trusted employee for 24 years. She performs all cash-handling and accounting duties. Norma just purchased a new luxury car and a new home in an expensive suburb. As owner of the company, you wonder how she can afford these luxuries because you pay her only $30,000 a year and she has no source of outside income. c. Izzie Hardwoods, a private company, falsified sales and inventory figures in order to get an important loan. The loan went through, but Izzie later went bankrupt and could not repay the bank. d. The office supply company where Pet Grooming Goods purchases sales receipts recently notified Pet Grooming Goods that its documents were not prenumbered. Howard Mustro, the owner, replied that he never uses receipt numbers. e. Discount stores such as Cusco make most of their sales in cash, with the remainder in credit card sales. To reduce expenses, one store manager ceases purchasing fidelity bonds on the cashiers. f. Cornelius's Corndogs keeps all cash receipts in an empty box for a week because the owner likes to go to the bank on Tuesdays when Joann is working. Print 2: Reference (1.) Loss of revenue due to low-quality work (2.) Lost data; unhappy customers, failure to collect receivables (3.) Lost sales due to delay of product development (4.) Theft of cash. (5.) Theft of cash and inefficiency (6.) Unreliable financial statements and lost credibility 3: Requirements 1. Identify the missing internal control characteristics in each situation. 2. Identify the possible problem caused by each control weakness. 3. Propose a solution to each internal control problem. (2) (1) O Assignment of responsibilities O Audits O Bank account as control device Competent, reliable, ethical personnel Separation of duties O Documents O Electronic devices O Other controls O (4) O (1) O (5) O (2) O (6) (3) O Assign company accountants to redesign the accounting system. Assign one employee to manage office in owner's absence. Assign programmers to product development only. O Purchase fidelity bonds for all cashiers. O Use pre-numbered documents. O Deposit to a bank account daily to utilize bank controls over cash. O Encrypt customer data and build firewalls into the database. O Have an audit to reduce the risk of false financial statements. O Keep accounting and cash-handling duties separate. (4) O Assign company accountants to redesign the accounting system. Assign one employee to manage office in owner's absence. Assign programmers to product development only. O Purchase fidelity bonds for all cashiers. Use pre-numbered documents. Deposit to a bank account daily to utilize bank controls over cash. O Encrypt customer data and build firewalls into the database. O Have an audit to reduce the risk of false financial statements. O Keep accounting and cash-handling duties separate. (5) O Assignment of responsibilities O Audits Bank account as control device O Competent, reliable, ethical personnel O Separation of duties O Documents O Electronic devices O Other controls (6) O O (4) O (1) O (5) O (2) O (6) O (3) (7) Assign company accountants to redesign the accounting system. O Assign one employee to manage office in owner's absence. Assign programmers to product development only. O Purchase fidelity bonds for all cashiers. o Use pre-numbered documents. Deposit to a bank account daily to utilize bank controls over cash. O Encrypt customer data and build firewalls into the database. O Have an audit to reduce the risk of false financial statements. O Keep accounting and cash-handling duties separate. (8) Assignment of responsibilities O Audits O Bank account as control device Competent, reliable, ethical personnel Separation of duties O Documents Electronic devices O Other controls O (4) O (1) O (5) O (6) (10) O Assign company accountants to redesign the accounting system. O Assign one employee to manage office in owner's absence. Assign programmers to product development only. O Purchase fidelity bonds for all cashiers. Use pre-numbered documents. O Deposit to a bank account daily to utilize bank controls over cash. O Encrypt customer data and build firewalls into the database. O Have an audit to reduce the risk of false financial statements. O Keep accounting and cash-handling duties separate. (11) (12) Assignment of responsibilities O Audits O Bank account as control device O Competent, reliable, ethical personnel O Separation of duties O Documents Electronic devices O Other controls o000 O (4) O (1) O (5) (2) O (6) (3) (13) O Deposit to a bank account daily to utilize bank controls over cash. Assign company accountants to redesign the accounting system. O Encrypt customer data and build firewalls into the database. Assign one employee to manage office in owner's absence. O Have an audit to reduce the risk of false financial statements. O Assign programmers to product development only. Keep accounting and cash-handling duties separate. Purchase fidelity bonds for all cashiers. O Use pre-numbered documents. 00 (15) (14) O Assignment of responsibilities O Audits O Bank account as control device Competent, reliable, ethical personnel Separation of duties O Documents Electronic devices O Other controls O (4) O (1) O (5) O (2) O (6) O (3) (16) O O Assign company accountants to redesign the accounting system. Assign one employee to manage office in owner's absence. Assign programmers to product development only. O Purchase fidelity bonds for all cashiers. O Use pre-numbered documents. Deposit to a bank account daily to utilize bank controls over cash. O Encrypt customer data and build firewalls into the database. O Have an audit to reduce the risk of false financial statements. O Keep accounting and cash-handling duties separate. O Separation of duties (17) O Assignment of responsibilities O Audits O Bank account as control device O Competent, reliable, ethical personnel O Documents Electronic devices O Other controls (18) O O (4) O (1) O (5) O (2) O (6) (3) (19) O Assign company accountants to redesign the accounting system. Assign one employee to manage office in owner's absence. O Assign programmers to product development only. O Purchase fidelity bonds for all cashiers. Use pre-numbered documents. Deposit to a bank account daily to utilize bank controls over cash. O Encrypt customer data and build firewalls into the database. O Have an audit to reduce the risk of false financial statements. O Keep accounting and cash-handling duties separate