a.
Concept Introduction:
Internal
The internal control principle that was violated.
b.
Concept Introduction:
Internal control system: This is a set of policies and procedures used by managers to protect assets, encourage effective operations, ensure reliable record keeping, and support the policies of the company. Managers use an internal control system to prevent avoidable losses, plan operations of the business, and monitor company and employee performance.
The internal control principle that was violated.
c.
Concept Introduction:
Internal control system: This is a set of policies and procedures used by managers to protect assets, encourage effective operations, ensure reliable record keeping, and support the policies of the company. Managers use an internal control system to prevent avoidable losses, plan operations of the business, and monitor company and employee performance.
The internal control principle that was violated.
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FINANCIAL AND MANAGERIAL ACCOUNTING
- Identify the internal control principle that was violated in each of the following separate situations. a. The recordkeeper left town after the owner discovered a large sum of money had disappeared. An audit found that the recordkeeper had written and signed several checks made payable to his fiancée and recorded the checks as salaries expense. b. An employee was put in charge of handling cash. That employee later stole cash from the business. The company incurred an uninsured loss of $184,000. c. There is $500 in cash missing from a cash register drawer. Three salesclerks shared the cash register drawer, so the owner cannot determine who is at fault.arrow_forwardConsider the scenario in which Brooke Miles, an accounts payable clerk for West Coast Design Inc., misappropriated $48,350 by paying false bills for commodities that were never delivered to the company. It was the clerk's responsibility to open accounts in the names of the phony corporations and pay the cheques at a nearby bank. Describe a fraud-prevention or detection method that may have been used to avoid or identify the scam.arrow_forwardNino Moscardi, president of Greater Providence Deposit & Trust (GPD&T), received an anonymous note in his mail stating that a bank employee was making bogus loans. Moscardi asked the bank’s internal auditors to investigate the transactions detailed in the note. The investigation led to James Guisti, manager of a North Providence branch office and a trusted 14-year employee who had once worked as one of the bank’s internal auditors. Guisti was charged with embezzling $1.83 million from the bank using 67 phony loans taken out over a three-year period. Court documents revealed that the bogus loans were 90-day notes requiring no collateral and ranging in amount from $10,000 to $63,500. Guisti originated the loans; when each one matured, he would take out a new loan, or rewrite the old one, to pay the principal and interest due. Some loans had been rewritten five or six times. The 67 loans were taken out by Guisti in five names, including his wife’s maiden name, his father’s name,…arrow_forward
- A long-time employee had become such a trusted employee that their bosses had put them in charge of paying bills, balancing bank accounts, and handling other cash management responsibilities. The employee became ill and took sick leave. During their absence, their employer determined they had been stealing company cash for years by forging checks and tamporing with company documents. The stolen cash was used to stoke a gambling habit. In total, the employee stole nearly $320,000. Answer questions in short answers What were the employee's perceived opportunities? What pressure did the trusted employee have to commit fraud? How did the fact that they were a trusted employee give them more opportinity to commit fraud? How do vices motivate people to commit fraud?arrow_forwardInternal Controls An employee of JHT Co., a private trucking company, was responsible for resolving roadway accident claims under $25,000. The employee created fake accident claims and wrote settlement checks between $5,000 and $25,000 to friends or acquaintances acting as phony “victims.” One friend recruited subordinates at his place of business to cash some of the checks. In addition, the JHT employee also recruited lawyers, who he paid to represent both the trucking company and the fake victims in the bogus accident settlements. When the lawyers cashed the checks, they allegedly split the money with the corrupt JHT employee. This fraud went undetected for two years. Please answer the following question: What control procedures should be changed to prevent such fraud?arrow_forwardInternal Controls An employee of JHT Co., a private trucking company, was responsible for resolving roadway accident claims under $25,000. The employee created fake accident claims and wrote settlement checks between $5,000 and $25,000 to friends or acquaintances acting as phony “victims.” One friend recruited subordinates at his place of business to cash some of the checks. In addition, the JHT employee also recruited lawyers, who he paid to represent both the trucking company and the fake victims in the bogus accident settlements. When the lawyers cashed the checks, they allegedly split the money with the corrupt JHT employee. This fraud went undetected for two years. Please answer the following questions: What weaknesses in internal control contributed to this fraud? Why would it take so long to discover such a fraud? What control procedures should be changed to prevent such fraud?arrow_forward
- 18.During an audit of a retail company, Lily, newly hired internal auditor, found a scheme in which the warehouse manager and a purchasing staff diverted approximately Php2 million worth of goods to an outside warehouse, the sold the goods to third parties. The fraud was not found earlier by the internal audit team since the warehouse manager updated the perpetual inventory records and then forwarded receiving reports to the accounts payable department for processing. Which of the following procedures did Lily perform which would have most likely led to the discovery of the missing materials and the fraud? Group of answer choices Random sampling of receiving reports and tracing to the recording in the perpetual inventory records. Selecting a random sample of purchase orders and trace to receiving reports and to the records in the accounts payable department. Performance of physical inventory count, then reconciliation of the amounts with the perpetual inventory records. Random…arrow_forward1. "The steps in the accounting cycle for a merchandising company are different from the accounting cycle for a service company." Do you agree or disagree? Explain. 2. A local bank reported that it lost $150,000 as the result of an employee fraud. Mr. X is not clear on what is meant by an "employee fraud." Explain the meaning of fraud to Mr. X and give examples of frauds that might occur at a bank. 3. On September 1, ABC Company had an inventory of 30 calculators at a cost of $18 each. The company uses a perpetual inventory system. During September, the following transactions occurred. Sept. 6 Purchased 80 calculators at $20 each from DeVito Co. for cash. Sept. 9 Paid freight of $80 on calculators purchased from DeVito Co. Sept. 10 Returned 2 calculators to DeVito Co. for $42 credit (including freight) because they did not meet specifications. Sept. 12 Sold 26 calculators costing $21 (including freight) for $31 each to Mega Book Store, terms n/30. Sept. 14 Granted credit of $31 to Mega…arrow_forwardAssume that Brooke Miles, accounts payable clerk for West Coast Design Inc., stole $48,350 by paying fictitious invoices for goods that were never received. The clerk set up accounts in the names of the fictitious companies and cashed the checks at a local bank. Please use at least 150 words to describe a control procedure that would have prevented or detected the fraud.arrow_forward
- Identify the fraud triangle risk factor (Opportunity, Pressure, or Rationalization) in each situation. 1. The business has no cameras or security devices at its warehouse. 2. A worker sees other employees regularly take inventory for personal use. 3. Payroll manager feels she is greatly underpaid. 4. No one matches the cash in the register to receipts when shifts end. 5. Managers are expected to grow business or be fired. 6. Managers are told to make extreme cuts in expenses. Opportunity Rationalization Pressure Opportunity Pressure Pressurearrow_forwardFraud refers to any intentional act to achieve gain, usually monetary. Committing a fraud isunethical and resulting in bad consequences, not just to the perpetrator, but also others (e.g.shareholders, workers etc.). Several example of fraud scenario are listed as follows:i). Store manager misused company’s car for personal purpose because he is the onlyperson that monitor the movement and usage of the car.ii). The accountant and the store keeper of AAA Enterprise co-operate in stealing thecompany’s inventory and they gain a lot of money from it.iii). The Chief Financial officer (CFO) of ABC Sdn Bhd had reported over $700,000 fakeearnings because he wants to achieve sales target.iv). XYZ Sdn Bhd booked revenues earlier than it should have because it was at risk ofmissing analyst estimates.Required;a. Identify the type of fraud committed in the scenario i). to iv). b. Based on the fraud triangle (i.e. pressure, opportunity and rationalization), identify thecause of fraud happen in the…arrow_forwardAssume that brooke miles accounts payable clerk for west coast design inc.stole $48,350 by paying fictitious companies and cashed the checks at a local banks. Describe a control procedure that would have prevented or detected the fraud?arrow_forward
- Auditing: A Risk Based-Approach (MindTap Course L...AccountingISBN:9781337619455Author:Karla M Johnstone, Audrey A. Gramling, Larry E. RittenbergPublisher:Cengage Learning