You are the systems analyst of Crabtree Computers Limited. Several recent incidents of employee errors and omissions have made you realized that there are certain flaws in the internal controls and auditing systems of the company. You decided to take a number of steps to mitigate the existing risks and to improve the audit and control processes. You are concerned with the segregation of duties. Required 1. What functions must be separated? If ideal segregation of duties is not economically feasible, what are some compensating controls that would help reduce the risk of fraud or error? 2. Using a flowchart diagram, explain the risk assessment process that you will implement at Crabtree Computers Limited to endeavour to improve the current system. 3. The information system of Crabtree Computers Ltd. is deemed to be 90% reliable. A major threat in the procurement process has been discovered with an exposure of $300,000. Two control procedures are identified to mitigate the threat. Implementation of control A would cost $18,000 and reduce the risk to 4%. Implementation of control B would cost $10,000 and reduce the risk to 6%. Implementation of both controls would cost $26,000 and reduce the risk to 2.5%. Given the information presented above and consider an economic analysis of costs and benefits only, which control procedure(s) should Crabtree Computers Ltd. choose to implement? Show the computation used to arrive at your solution. 4. Which internal control(s) would you recommend to prevent the following situations from occurring? a) Authorization of a credit memo for a customer’s account (on receivables) when the goods were never actually returned. b) Theft of funds by the cashier, who cashed several cheques and did not record their receipt. c) Inventory was stolen by receiving dock personnel. The receiving clerk claimed the inventory was sent to the warehouse but the warehouse clerk did not record properly. d) Writing off a customer’s accounts receivable balances as uncollectible in order to conceal the theft of subsequent cash collections. e) Billing customers for the quantity ordered when the quantity shipped was actually less due to back-ordering of some items.
You are the systems analyst of Crabtree Computers Limited. Several recent incidents of employee errors and omissions have made you realized that there are certain flaws in the internal controls and auditing systems of the company. You decided to take a number of steps to mitigate the existing risks and to improve the audit and control processes. You are concerned with the segregation of duties.
Required
1. What functions must be separated? If ideal segregation of duties is not economically feasible, what are some compensating controls that would help reduce the risk of fraud or error?
2. Using a flowchart diagram, explain the risk assessment process that you will implement at Crabtree Computers Limited to endeavour to improve the current system.
3. The information system of Crabtree Computers Ltd. is deemed to be 90% reliable. A major threat in the procurement process has been discovered with an exposure of $300,000. Two control procedures are identified to mitigate the threat. Implementation of control A would cost $18,000 and reduce the risk to 4%. Implementation of control B would cost $10,000 and reduce the risk to 6%. Implementation of both controls would cost $26,000 and reduce the risk to 2.5%. Given the information presented above and consider an economic analysis of costs and benefits only, which control procedure(s) should Crabtree Computers Ltd. choose to implement? Show the computation used to arrive at your solution.
4. Which internal control(s) would you recommend to prevent the following situations from occurring?
a) Authorization of a credit memo for a customer’s account (on receivables) when the goods were never actually returned.
b) Theft of funds by the cashier, who cashed several cheques and did not record their receipt.
c) Inventory was stolen by receiving dock personnel. The receiving clerk claimed the inventory was sent to the warehouse but the warehouse clerk did not record properly.
d) Writing off a customer’s accounts receivable balances as uncollectible in order to conceal the theft of subsequent cash collections.
e) Billing customers for the quantity ordered when the quantity shipped was actually less due to back-ordering of some items.
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