Textbook Problem

The following is a list of 12 control plans from this chapter or from Chapters 8 through 12.

Control Plans

1. A. Digital signature
2. B. Tickler file of open POs and receiving reports
3. C. Procedures for rejected inputs
4. D. Compare input data with master data (e.g., vendor master data)
5. E. Segregate duties among purchasing, receiving, and accounts payable
6. F. Program change controls
7. G. Reconcile bank account
8. H. Reconcile run-to-run totals
9. I. Review of a cash planning report
10. J. Match invoice, PO, and receiving report
11. K. Access control software
12. L. Segregate duties between accounts payable and cashier

The following are 10 system failures that have control implications.

System Failures

1. 1. Wilson Inc. ordered 30 circuit breakers from Elon Electric. Only 25 breakers were received; the other five were on back order at Elon. An invoice for 30 breakers was received at Wilson, recorded, and eventually paid.
2. 2. Trent Company often does not receive invoices in a timely manner and cannot record them in time to take advantage of payment discounts.
3. 3. Norma, the cashier at Scarsdale Company, has been writing checks to herself. This fraud has gone undetected for years.
4. 4. At East Bend Company, all incoming invoices are matched against open POs and receiving reports. When Juan, the purchasing manager, is performing this match, he sometimes can’t find a PO, and so he prepares a PO to cover the invoice.
5. 5. India Company receives batches of vendor invoices once each day via an EDI feed from a VAN. Some of these invoices are from vendors that do not do business with India.
6. 6. Westover Corp. often loses discounts on payments to vendors because of cash flow problems.
7. 7. Allie, the AP clerk at Fuller Company, has grown tired of resolving discrepancies among vendor invoices, POs, and receiving reports. To make his life easier and to reduce rejects, she changed the AP invoice program to allow large variances.
8. 8. Twice each week, Nellie, the AP clerk at Zagreb Company, selects a batch of vendor invoices and sends them to Gary, the clerk in cash disbursements. Occasionally, after Gary makes the electronic payments, it is discovered that not all the payments were made or that some were made incorrectly.
9. 9. Searcy, Inc. receives electronic invoices through a Web portal hosted by a third party. Some of these invoices are not correct. After investigation, it is discovered that the invoices were altered in transit from the vendor.
10. 10. Vendor payments are made on a weekly basis at Rainbow Company.

Gary, the cashier, looks over the invoices that he has received and makes payments as needed. Some of those payments are to bogus vendors who Gary knows have not provided any goods or services to Rainbow.

Match the 10 system failures with a control plan that would best prevent the system failure from occurring. Because there are 12 control plans, you should have two letters left over.