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Home Repair Corp. (HRC) operates a building maintenance and repair business. The business has three office employees-a sales manager, a materials/crew manager, and an accountant.
Home Repair Corp. (HRC) operates a building maintenance and repair business. The business has three office employees-a sales manager, a materials/crew manager, and an accountant. HRC's cash payments system is described below. Required: 1. For each statement (a), (f), identify the internal control principle being applied. a. After a contract is signed with a customer, the sales manager prepares a prenumbered purchase requisition form that indicates the materials needed for the work at the repair site. Based on the purchase requisition form, the materials/crew manager prepares and sends a prenumbered b. purchase order to suppliers of materials, advising them of the specific materials needed and the repair site to which they should be delivered. c. The materials/crew manager is the only employee authorized to order goods. Upon receiving a supplier's invoice, the accountant compares it to terms indicated on the purchase order, noting in d. particular the prices charged and quantities ordered. If these documents are in agreement, the accountant prepares a prenumbered check, stamps the invoice "paid," e. and prepares a journal entry to record the payment. The journal entry explanation references the sequential number on the purchase order. HRC's owner prepares a monthly bank reconciliation and reviews checks returned with the bank statement to f. ensure they have been issued to valid suppliers. 3. After several months, HRC's materials/crew manager is arrested for having $20,000 of materials delivered to his home but charged to the company. Identify the internal control weakness that allowed this theft to occur. O There was no way to independently verify that amounts charged by suppliers were for goods that had been delivered to authorized work sites. The materials/crew manager's order should have been verified by the department head. O A copy of the purchase order was not sent to the repair site. O Purchase orders were not prepared on the basis of prenumbered requisition forms
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