Question 1 Simon Blank Construction Company has two divisions. The president (Chris Simon) manages the roofing division. Simon delegated authority and responsibility for management of the modular manufacturing division to John Gault. The company has a competent accounting staff and a fulltime internal auditor. Unlike Simons procedures, however, Gault and his secretary handle all bids for manufacturing jobs, purchase all materials without competitive bids, control the physical inventory of materials, contract for shipping by truck, supervise the construction activity, bill the customer when the job is finished, approve all bid changes, and collect the payment from the customer. With Simons tacit approval, Gault has asked the internal auditor not to interfere with his busy schedule.

Required : Identify three deficiencies in internal control and identify and one fraud that could occur.

b. Indicate whether each of the following controls is relevant to ensure that only valid cash payments are made. i. Segregation of duties

ii. Daily cash payments reconciled to posting to payable accounts.

iii. Use of pre-numbered cheques.

iv. Reconciliation of daily payments report to electronic cash payment transfers and cheques issued.

v. Supplier statements reconciled to payable accounts regularly.

vi. Monthly bank reconciliations of bank statements to ledger account.

vii. Supplier statements reconciled to payable accounts regularly.

viii. Independent review of supplier invoices or statements and reconciliation of supplier invoice with trade payable records.

ix. Preparation and review of monthly bank reconciliations

x. Electronic cash payments and issue of cheques should be can only be done by authorised staff

xi. Electronic cash payments and cheques prepared only after all source documents have been independently approved.

xii. Cash payments must be reviewed by the by manager before release