Exercise I.

Explain how each of the following procedures or policies strengthens a companys internal control:

a.Picket Companys bank requires a signature card on file for each Picket Company employee who is authorized to sign checks.

b.Wilson Corporation has a policy that every employee must take two weeks of vacation each year.

c.After preparing a check for a cash disbursement, the accountant for Travis Lumber Company cancels the supporting business documents (purchase order, receiving report, and invoice) by stamping them PAID.

Exercise II.

Identify three internal control principles that may be violated in Dr. Springs clinic.

Bart Simons has worked for Dr. Spring for many years. Bart has been a model employee. He has not taken a vacation in over four years, always stating that work was too important. One of Barts primary jobs at the clinic is to open mail and list the checks received. He also collects cash from patients at the cashiers window as patients leave. There are times that things are so hectic that Bart does not bother to give the patient a receipt; however, he assures them that he will make sure their account is properly credited. When things slow down at the clinic Bart often offers to help Lisa post payments to the patients accounts receivable ledger. Lisa is always happy to receive help since she is also quite busy and because Bart is such a careful worker.