Chapter 3, Problem 1SC

Listed below are five procedures followed by Gilmore Company.Indicate whether each procedure is an example of good internal control or of weak internal control. If it is an example of good internal control, indicate which internal control principle is being followed. If it is an example of weak internal control, indicate which internal control principle is violated. Use the table below. Procedure   IC Good or Weak?   Related Internal Control Principle 1.   Employees are required to take vacations.   Select a weakness in internal control  GoodWeak   Select a control principle that is violated  Human Resource ControlsIndependent Internal VerificationEstablishment of ResponsibilityPhysical ControlsSegregation of DutiesDocumentation Procedures 2.   Any member of the sales department can approve credit sales.   Select a weakness in internal control  WeakGood   Select a control principle that is violated  Segregation of DutiesDocumentation ProceduresEstablishment…

Listed below are five procedures followed by Gilmore Company.Indicate whether each procedure is an example of good internal control or of weak internal control. If it is an example of good internal control, indicate which internal control principle is being followed. If it is an example of weak internal control, indicate which internal control principle is violated. Use the table below. Procedure   IC Good or Weak?   Related Internal Control Principle 1.   Employees are required to take vacations.   Select a weakness in internal control                                                           GoodWeak   Select a control principle that is violated                                                           Independent Internal VerificationSegregation of DutiesEstablishment of ResponsibilityPhysical ControlsHuman Resource ControlsDocumentation Procedures 2.   Any member of the sales department can approve credit sales.   Select a weakness in internal control…

You are the chief information officer for a midsized organization that has decided to implement an ERP system. The CEO has met with a consulting ERP firm based on a recommendation from a personal friend at his club. At the interview, the president of the consulting firm introduced the chief consultant, who was charming, personable, and seemed very knowledgeable. The CEO’s first instinct was to sign a contract with the consultant, but he decided to hold off until he had received your input. Required Write a memo to the CEO presenting the issues and the risks associated with consultants. Also, outline a set of procedures that could be used as a guide in selecting a consultant.

Imagine that your business hired a manager who was not from your country, therefore was unfamiliar with the way things were done. The manager has an introductory meeting with the team and has asked that you help with learning the operations as quickly as possible.  A co-worker suggested that in order to get started, the manager should look at the systems documentation. Why do you think your co-worker suggested this and why did he or she not offer to explain it to the new manager?

Internal control is said to be the backbone of all businesses. Which of the following is the best description of internal controls? A. Internal controls ensure that the financial statements published are correct. B. The only role of internal controls is to protect customer data. C. Internal controls and company policies are important to protect and safeguard assets and to protect all company data and are designed to protect the company from fraud. D. Internal controls are designed to keep employees from committing fraud against the company.

What is the best way for owners of small businesses to maintain proper internal controls? A. The owner must have enough knowledge of all aspects of the company and have controls in place to track all assets. B. Small businesses do not need to worry about internal controls. C. Small businesses should make one of their employees in charge of all aspects of the company, giving the owner the ability to run the company and generate sales. D. Only managers need to be concerned about internal controls.

Internal Control Cases UTICA LIGHTING COMPANY (CENTRALIZED SYSTEM WITH DISTRIBUTED TERMINALS) Utica Lighting Company (ULC) is a manufacturer of outdoor lighting systems for patios, walkways, and public areas. It markets its product to landscaping companies and local municipalities. ULC employs a centralized computer system with distributed terminals in the various departments. Recently the company has been having manufacturing delays and cost overruns. ULC has hired your auditing firm to assess its operations and internal control procedures. ULCs conversion cycle is triggered by a report from the finished goods warehouse. The warehouse clerk periodically reviews the inventory records in a search for low-stock items. When the quantity on hand of an inventory item in the finished goods warehouse falls below its pre-established minimum, the warehouse clerk sends a digital inventory status report from the warehouse terminal to production planning and control advising them to schedule a production batch run for the item in question. Upon receipt of the report the production planning and control department clerk accesses the digital bill of materials and the routing sheet files for the items to be produced and adds the production details to the digital production schedule. The system automatically adds a record to the open work order file and sends a digital work order to the work center supervisors terminal and to the cost accounting clerks terminal. The work center supervisor accesses the work order from his terminal and prints hard-copy move tickets and material requisitions for each stage in the production process. Production employees take the materials requisitions to the storekeeper and secure the components, subassemblies, and raw materials needed to perform their production tasks. If excess materials beyond the standard amount are needed, the supervisor prepares additional materials requisitions. The employees also complete job time tickets after each stage in the process to reflect the time spent on the job. When the employees complete their tasks, they send the move tickets and time tickets to the cost accounting department. The storekeeper receives the materials requisitions and releases the materials into production. He then updates the raw material inventory records and sends the requisition to cost accounting. When inventories of component parts and raw materials fall to their reorder points, the storekeeper prepares purchase orders and sends them to the respective vendors. Vendors deliver raw material inventories directly to the storeroom, at which time the storeroom clerk inspects them and updates the digital raw materials subsidiary ledger. Each day the storekeeper prepares a journal voucher and posts to the general ledger raw material control account. The cost accounting clerk receives the digital work order and initiates a new WEP account for the batch. During the production process, the clerk receives hard-copy move tickets, materials requisitions, and job tickets from the work centers, which the clerk uses to update WIP account. When production is complete, the clerk closes the WIP account for the batch and transfers it to the finished good inventory subsidiary ledger. At the days end, the cost accounting clerk prepares a digital journal voucher reflecting the WIP status and any transfers from WIP to finished goods inventory. The clerk then posts the journal voucher to the WEP and FG general ledger control accounts. Required a. Prepare a data flow diagram of the current system. b. Prepare a system flowchart of the existing system. c. Describe the internal control weaknesses.