During your first audit of medium-size manufacturing company, the owner, John Bell, explains that in order to establish clear-cut lines of responsibility for various aspects of the business, he has made the following assignments: One employee is responsible for the purchasing, receiving, and storing of merchandise. A second employee has full responsibility for maintenance of accounts receivable records and collections from customers. A third employee is responsible for personnel records, timekeeping, preparation of payrolls, and distribution of payroll checks. Bell asks your opinion concerning this plan of organization.

Instructions: Explain fully the reasons supporting your opinion on each assignment. If the assignment violates an internal control principle, describe the principle and how to correct the violation.

1. One employee is responsible for the purchasing, receiving, and storing of merchandise.

2: A second employee has full responsibility for maintenance of accounts receivable records and collections from customers.

3: A third employee is responsible for personnel records, timekeeping, preparation of payrolls, and distribution of payroll checks.