The OBJECTIVES of Internal Control are:

Safeguard assets

Process information accurately

Ensure compliance with laws and regulations

The ELEMENTS of Internal Control are

Control Environment

Risk Assessment

Control Procedures

Monitoring

Information and Communication

The Control Procedures include the following:

Competent personnel, rotating duties, mandatory vacations

Separating responsibilities

Separating operations, custody of assets, and accounting

Proofs and security measures

Review the following situations for South Oil Services:

Situation a. In evaluating the internal control over inventory for the South Oil Services Company, an auditor learns that the warehouse receiving clerk is responsible for ordering parts for supply inventory use in drilling services, counts the inventory when received at the dock, records the receipts into the inventory ledger, and takes the annual inventory, No supervisor reviews the receiving clerks work.

Situation b. Donald Jones handles employee travel and expense reports for South Oil Services. With the growth in the economy, the sales team began traveling extensively gaining new business. Because of the heavy volume, Donald no longer required the sales team to provide original airline, hotel, or car rental receipts. He told them to just keep their meals under the $100 per day per diem and no receipts were required. He allowed them to use their own credit cards so they could get the frequent flyer points. He required them to turn in a summary of the travel expenses quarterly.

Situation c. Linda Smith is a Human Resource Manager for South Oil. Linda follows her own judgments when deciding which: employees are hired and fired, sexual harassment claims pursued, and how ethical infractions should be handled. In fact she hired a number of her relatives and clocks in for her relatives when they miss work. Linda is also responsible for verifying payroll timecards . Linda does not take vacations for fear her actions will be discovered.Top of Form

Requirements: Use the Control Procedures to answer the following

1. Identify the missing internal control PROCEDURE(S) in each situation.

2. Identify each firms possible problem created by not having the control procedure(s).

3. Propose a solution.

It may help to research the internet for articles regarding various thoughts on ethics. Be sure to provide material references for material included in your report.