Assignment: Post meaningful responses to the answers in bold. Agree/disagree, added comments/questions/concerns etc.

5. The purchasing agent, Susan Martin, used a Carter Company purchase order to order building materials from Builders Mart. Later, she telephoned Builders Mart and changed the delivery address to her home address. She told Builders Mart to charge the material to Carter Company. At month-end, she approved the invoice from Builders Mart for payment.

Internal control procedures are put in place to ensure accuracy and reliability, while also preventing fraud. The Company is in violation of Separation of duties. Susan shouldn't be the same person ordering materials and approving the invoice. The company should have these duties separated because it creates less chance of fraud from employees. Because they didn't have this in place, Susan was able to commit the act that she did. To also prevent this from happening, the company should perform a physical audit every so often to confirm inventory. Since the items that Susan ordered went to her house, the company would be able to spot this because it wouldn't reflect in the inventory. The approving of orders and invoices could also be approved by the company's manager, because as of now the company is in violation because they don't have approving authority.

Fran Jones opens the company's mail and lists all checks and cash received from customers. A copy of the list is sent to Jerry McDonald who maintains the general ledger accounts. Fran prepares and makes the daily deposit at the bank. Fran also maintains the subsidiary ledger for accounts receivable, which is used to generate monthly statements to customers.

The main violation of good internal control procedures would be the lack of segregation of duties. While Jerry McDonald is responsible for maintaining the general ledger accounts, Fran Jones is responsible for all other steps in the process. The main issue with this is that Fran is responsible for the recordkeeping of the receipt of payments while also having access to the assets for which she is accounting. This causes a potential opportunity for Fran to commit a dishonest act without a measure in place for someone else to catch the act. From the text, One employee should not initiate, approve, record, and have access to the items involved in the same transaction. For example, if Fran underrepresents the amount of money received from customers in cash and checks, since she is also responsible for reporting that list to Jerry, depositing the funds in the bank, and maintaining the subsidiary ledger for accounts receivable, there is no other employee who would be able to catch that dishonest act since Fran is solely responsible for all of the steps involved.

The best way to correct this internal control weakness would be to assign another individual, or other individuals, to the receipt of payments from customers, for the deposit of those payments, or for the maintenance of the subsidiary ledger. By segregating these duties, Fran would not have the opportunity to misrepresent the amounts received because there would be another employee responsible for at least one of the steps in the initiate, approve, record, and access process. If Fran is given the responsibility of receiving the funds, but another employee is assigned the task of verifying the amounts received and the amounts recorded match, Fran would not be able to commit a dishonest act at that point.