Each of the following situations has an internal control weakness:
a. Retail stores such as Target and Best Buy receive a significant portion of their sales revenue in cash. At the end of each day, sales clerks compare the cash in their own register with the record of sales kept within the register. They then forward the cash to a Brinks security officer for deposit in the bank. (p. 232)
b. The office supply company from which Martin Audiology Service purchases cash receipt forms recently notified Martin that the last-shipped sales receipts were not prenumbered. Derek Martin, the owner, replied that he did not use the receipt numbers, so the omission is unimportant to him. (pp. 219–220)
c. Azbell Electronics specializes in programs with musical applications. The company’s most popular product prepares musical programs for large gatherings. In the company’s early days, the owner and 8 employees wrote the programs, lined up production of the programs, sold the products, and performed the general management of the company. As Azbell has grown, the number of employees has increased dramatically. Recently, the development of a new musical series stopped while the programmers redesigned Azbell’s sound system. Azbell could have hired outsiders to do this task. (pp. 217–218)
d. Paul Allen, who has no known sources of outside income, has been a trusted employee of Chapparall Cosmetics for 20 years. Allen performs all cash-handling and accounting duties, including opening the mail, preparing the bank deposit, accounting for cash and accounts receivable, and preparing the bank reconciliation. Allen has just purchased a new Lexus. Linda Altman, owner of the company, wonders how Allen can afford the new car on his salary. (pp. 217–218)
e. Monica Wade employs 3 professional interior designers in her design studio. The studio is located in an area with a lot of new construction, and her business is booming. Ordinarily, Wade does all the purchasing of materials needed to complete jobs. During the summer, Wade takes a long vacation, and in her absence she allows each designer to purchase materials. On her return, Wade reviews operations and observes that expenses are higher and net income is lower than in the past. (pp. 217–218)
1. Identify the missing internal control characteristics in each situation.
2. Identify each firm’s possible problem.
3. Propose a solution to the problem.
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