Internal controls All-Around Sound Co. discovered a fraud whereby one of its front office administrative employees used company funds to purchase goods, such as computers, digital cameras, and other electronic items for her own use. The fraud was discovered when employees noticed an increase in delivery frequency from vendors and the use of unusual vendors. After some investigation, it was discovered that the employee would alter the description or change the quantity on an invoice in order to explain the cost on the bill. What general internal control weaknesses contributed to this fraud?

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Corporate Financial Accounting

14th Edition

Carl Warren + 2 others

Publisher: Cengage Learning

ISBN: 9781305653535

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BuyFind

Corporate Financial Accounting

14th Edition

Carl Warren + 2 others

Publisher: Cengage Learning

ISBN: 9781305653535

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Answer 3

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Answer 4

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Answer 5

To determine

Internal Control: Internal control refers to the policies, and plans of the business organization along with other measures with a view to safeguard its assets, encourage the employees to adhere to the plans, to improve on the operational efficiency, and to ensure correct and reliable accounting information. Internal control is a process which ensures continuous reliability of accomplishment of a company’s objectives, related to operations, financial reporting, and in conformity with laws and regulations. The following are the some of the internal control procedures:

Competent personnel, rotating duties, and mandatory vacations
Separating responsibilities for related operations
Separating operations, custody of assets, and accounting
Proofs and security measures

To state: The general internal control weakness contributed to the fraud.

Explanation of Solution

AAS is to be relied on the unusual nature of the vendors and deliveries. Out of the business cycles, purchase and payment cycles are the most critical business cycles. Purchases are instigated through requisition document and thus, it is being countersigned by a superior. The requisition begins with a purchase order to a particular vendor for goods / services.

Receiving documents are attached to the goods. The accounts payable clerk matches the following: Requisition, Purchase order, and invoice before making any payments...

Corporate Financial Accounting

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Corporate Financial Accounting

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