After Reading Chapter 7, Answer The Questions Below

Question

After Reading Chapter 7 Answer The Questions Below The First Part after Reading Chapter 7 Answer The Questions Below The First Part Questions: Consider the following principles of Internal Control: Establishment of responsibility, segregation of duties, documentation, physical-mechanical-electronic controls, independent internal verification, human resource controls. Pick ONE of the following scenarios and answer: Is there an Internal Control Issue in this situation? What is it? What principles, if any, are violated? What are the risks? (Response should be brief, about six sentences). A small landscaping company buys rocks and lumber. One of the project managers is responsible for ordering the lumber, which he does by calling up the lumber dealer and ordering a shipment over the phone. No purchase order is used. The lumber dealer delivers lumber directly to the job site and invoices the company once a month, on one bill. “Scrap” is inventory that is broken, either in the warehouse or on the production floor. Rather than discard it, the company has a policy of filling a box up with scrap (metal fitting, clamps, sheet metal). When the box is full, one employee hauls it to the Scrap Dealer, who weighs it, and issues the company a check for the items. Depending upon the weight of the box (determined at the scrap dealer’s), the check amounts vary. A dedicated bookkeeper rarely, if ever, takes a vacation. She is responsible for paying all of the bills and inputting them into the Accounting System (Quickbooks). She handles the checks, and brings them to the President to sign. She is also responsible for the bank reconciliation.

Dr. Jack HW Helper · Accepted Answer

In the scenario described, there are multiple internal control issues that could compromise the company's financial integrity and operational effectiveness. The most significant concern is the lack of a formal purchase process, such as the absence of purchase orders for lumber, which violates the principle of documentation and establishment of responsibility. Without written records or segregation of duties—since the project manager is responsible for ordering without oversight, and the same individual may influence inventory—there is an increased risk of unauthorized or fraudulent transactions, potentially leading to theft or misappropriation of company assets. Additionally, relying on a single bookkeeper who handles all payments, inputs data, handles checks, and performs bank reconciliations breaches the segregation of duties principle, elevating the risk of errors and fraud going undetected. The fact that the bookkeeper rarely takes vacations further exacerbates risk, as her absence could hinder internal verification processes, which are critical for detecting anomalies. Implementing physical controls, such as secure storage for inventory and proper segregation of responsibilities, would help mitigate these risks. Overall, the scenario demonstrates significant internal control weaknesses that threaten financial accuracy and operational integrity. References Albrecht, W. S., Albrecht, C. C., Albrecht, C. O., & Zimbelman, M. F. (2020). Internal Auditing: Theory and Practice. CRC Press. Hoyle, J. B., Schaefer, C. E., & Doupnik, S. (2019). Modern Auditing & Assurance Services. McGraw-Hill Education. Moeller, R. (2019). COSO Enterprise Risk Management: Establishing risk accountability. John Wiley & Sons. Arens, A. A., Elder, R. J., & Beasley, M. S. (2022). Auditing and Assurance Services. Pearson. Rubio, D. M., Berg-Weger, M., Topping, K., & Sierra, R. (2019). Objectifying the Assessment of Internal Control Systems. Journal of Accounting and Pu

after Reading Chapter 7 Answer The Questions Below The First Part

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