The management at Sampson, Inc. understands that an effective internal control system provides many positives. Among these positives are reliable financial information that enables management to make educated decisions with an opportunity to prevent or detect errors. The internal audit staff at Sampson conducts a periodic review of the organizations accounting records in order to determine if the system for internal controls is effective.

In the latest audit, the staff found the following situations:

1) Bank deposits and cash receipts do not always reconcile.

2) Decisions and the actual write-offs of bad debt are performed by the same person.

3) Occasional discrepancies exist between physical inventory and the perpetual inventory records.

4) Adjustments to physical inventory counts and the perpetual inventory records have been observed.

5) Customer refunds and credits are not unusual.

6) Original source documents are missing. However, substitute copies of the original source documents are available.

7) Many source documents lack appropriate management approval.