Case Study 2 Due By Sunday Of Week 5 At 11:59 PM Mountain Ti

Case Study 2due By Sunday Of Week 5 1159 Pm Mountain Timelearnin

Each of the following situations reveals an internal control weakness:

Situation a: In evaluating the internal control over inventory for the Williams 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 clerk’s work.

Situation b: Nicole Lopez handles employee travel and expense reports for Scott Sales Services. Due to the company's growth, the sales team began traveling extensively. She no longer requires the sales team to provide original airline, hotel, or car rental receipts. She advised them to keep their meals under the $100 per day per diem and no receipts were required. She allowed employees to use their own credit cards to accumulate frequent flyer points. She required a quarterly summary of travel expenses.

Situation c: Michael Jordon is a new employee hired from Craig’s List, recommended by a co-worker. He was hired as a Human Resource Assistant. On his first day, he is told to follow his own judgment regarding employee issues such as hiring, firing, sexual harassment, and ethical infractions.

Paper For Above instruction

Internal controls are vital components of effective management and safeguarding of assets within an organization. They ensure accuracy, reliability, and compliance with policies and regulations. When these controls are weak or missing, organizations are exposed to risks such as fraud, misappropriation, errors, and operational inefficiencies. The following analysis identifies the specific internal control deficiencies within each situation, assesses potential problems that may result, and proposes suitable solutions to mitigate these issues.

Situation a: Inventory Control Weakness

The missing internal control characteristic in this scenario is "Segregation of Duties." Specifically, the warehouse receiving clerk is responsible for ordering, receiving, and recording inventory without oversight. This lack of segregation creates an environment susceptible to theft, fraud, and errors, because one individual controls multiple stages of the inventory process. The potential problem is that inventory theft or misstatement could go unnoticed, leading to financial losses or stock discrepancies.

A suitable solution is to implement segregation of duties by assigning different personnel to order, receive, record, and periodically review inventory. Supervisory oversight must be established, where a manager or internal auditor reviews the clerk’s work independently, including reconciliations and physical counts. Additionally, periodic inventory counts should be conducted by personnel independent of the receiving and recording process to confirm accuracy. Using automated inventory management systems can also strengthen control by providing real-time tracking and audit trails.

Situation b: Expense Reimbursement Weakness

The primary internal control deficiency here is "Inadequate Documentation and Oversight." The absence of original receipts and reliance on employee summaries diminish the ability to verify expenses, increasing the risk of fraud or misreporting. Also, allowing employees to use their personal credit cards and self-report expenses without receipts weakens accountability and internal oversight.

To address this, the company should enforce policies requiring original, itemized receipts for all expenses, regardless of amount, to ensure costs are legitimate and accurately recorded. Implementing an electronic expense management system can streamline submission, verification, and approval processes, providing audit trails and reducing opportunities for fraud. Moreover, periodic audits of expense reports and random receipt verification further strengthen internal controls. Providing training to employees on expense policies ensures clarity and compliance.

Situation c: Lack of Clear Employee Issue Procedures

The internal control weakness lies in "Lack of Formal Policies and Oversight" for handling employee matters. Giving a new hire complete discretion over critical HR decisions without supervision opens the door to inconsistent, biased, or unethical decision-making.

The possible problem is that inconsistent or unethical handling of HR issues could lead to legal liabilities, morale problems, and damage to the organization's reputation. Establishing formal HR policies is essential to ensure fair, consistent, and compliant decision-making. This includes clear procedures for hiring, firing, handling harassment, and addressing ethical concerns, along with supervisor review of decisions made by HR personnel.

Implementing a structured HR framework with documented policies, mandatory training, and supervision ensures compliance with employment laws and ethical standards. Incorporating regular audits of HR decisions and creating channels for reporting unethical behavior reinforce accountability and internal controls within human resources processes.

Conclusion

In conclusion, internal control weaknesses can significantly impair the integrity, financial accuracy, and ethical standards of an organization. Identifying missing control characteristics such as segregation of duties, proper documentation, and formal policies allows organizations to address gaps proactively. Implementing targeted solutions like segregation of duties, technological controls, formal policies, and supervisory oversight reduces risk and strengthens organizational governance. Continuous monitoring, periodic audits, and employee training are essential for maintaining robust internal controls that support organizational objectives and safeguard assets.

References

• Cosserat, W. (2010). Internal Control Basics. Journal of Accountancy, 209(6), 48-52.
• Gelinas, U. J., Sutton, S. G., & Zimpleman, J. F. (2019). Accounting Information Systems (11th ed.). Cengage Learning.
• COSO. (2013). Internal Control — Integrated Framework. Committee of Sponsoring Organizations of the Treadway Commission.
• Murphy, R. (2021). Enhancing Organizational Internal Controls. Auditing & Assurance Journal, 36(4), 25-30.
• Rittenberg, L. E., Johnstone, K., & Gramling, A. (2021). Auditing: A Risk-Based Approach. Cengage Learning.
• Schneider, A. (2015). The Importance of Segregation of Duties. Internal Auditor, 72(3), 42-45.
• Rawlinson, J. (2017). Ethical Decision Making in Human Resources. HR Magazine, 62(12), 54-59.
• Schmidt, J. (2018). Preventing Fraud through Internal Controls. Journal of Financial Crime, 25(3), 678-690.
• Jones, M. (2019). Best Practices for Expense Management Audits. Management Accounting Quarterly, 20(2), 15-21.
• Williams, S., & Thomas, A. (2020). Human Resource Policies and Control. Human Resource Management Review, 30(2), 100695.