Floors 4 U Inc., a private company based in south Texas, does business with several area school districts by renovating their wood, synthetic, and epoxy floors (e.g., gymnasium floors). The company employs about 25 workers and has been in business for over 30 years. Most workers specialize in one of the three divisions; wood, synthetic or epoxy. However if work is slow in their appointed area, employees will go to another area to help. The company handles most of its business when schools are closed during the summer. During the summer months, employees generally work 70 to 80 hours per week. One month after the school year begins, business for Floors 4 U Inc. starts to slow down and sometimes employees work 20 or fewer hours per week.

Many of the employees of Floors 4 U are relatives or friends of the owners. The owners realize that during the slow season, most of the workers will have problems paying their bills if they are not paid for 40 hours a week. Among the workers, there is a silent agreement to be less productive during the slow times in order to have enough work to fill forty hours a week. Therefore, if a job should take two days, the employees find ways to make it last a whole week. Since the jobsites are outside the local area and away from the corporate offices and immediate supervision, employees have been reported showing up for late for work, taking longer lunch breaks, and leaving early. Also, during busy season, many of the employees have to work on two or three different jobsites on the same day. The warehouse manager is not able to keep up with the demand from the various jobsite locations for materials and equipment. Shipment of materials such as varnish, sacks of grout, or cans of epoxy paint need to be picked up and delivered to various locations throughout the day. Students are hired to help during the summersome at the warehouse, and some at the onsite job locations.

The company is small and does not have a fleet of company trucks available; only the operations manager and the warehouse manager have company trucks. Employees have to use their personal vehicles to get to the job sites and transport what they need for the job. Employees must determine how to transport the required equipment and materials to the jobsites. Some of them ask the operations manager or the warehouse manager to take the equipment and materials to the job sites. Some employees use their personal trucks to take the equipment, but others have small cars; big equipment such as sanders, buffers or table saws do not fit in their vehicles. As the workers might have to work on multiple jobsites during the day, the operations manager has difficulty monitoring the logistics to have the correct materials and equipment at the correct jobsite. This process slows down the work and leads to frustration among workers during the busy summer months, as they must wait for items to be delivered that are needed to complete their job tasks. Some workers leave the larger pieces of equipment at the jobsites because the items cannot be hauled back to their homes or to the corporate office at the end of the day.

To add to the difficulty of efficiently completing jobs, some employees have to be pulled off jobs because they have more experience in other systems, resulting in the necessity of leaving the equipment and materials in another persons custody (further muddying accountability). Often employees have to buy new equipment or materials from Home Depot. In these cases, the receipts are turned in to the accounting clerk for reimbursement.

By the end of the most recent summer, it was found that more than $10,000 worth of equipment was lost or otherwise unaccounted for; in some cases, there were too many of a certain type of tool available, and in other cases, there were too few of a certain type of tool available. Also, the accounting clerk has complained that employees buy whatever they want during the busy season and sometimes there is no way to determine whether or not what they ions. bought was necessary. There are rumors that employees buy equipment or tools (selling them later to friends), and that they buy items such as ceiling fans for their own personal use, turning in receipts that lack itemized descriptions of purchased items (such as credit card statements) for reimbursement.

List one internal controls to prevent each of the following possible fraudulent activities: (1) loss of inventory or equipment, (2) suspicious receipts and (3) the abuses of hours worked during the slow season (A minimum of three controls in total).