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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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Financial And Managerial Accounting

15th Edition
WARREN + 1 other
Publisher: Cengage Learning,
ISBN: 9781337902663

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Chapter
Section
BuyFindarrow_forward

Financial And Managerial Accounting

15th Edition
WARREN + 1 other
Publisher: Cengage Learning,
ISBN: 9781337902663
Chapter 7, Problem 7E
Textbook Problem
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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?

To determine

Identify the general internal control weaknesses that contributed to the fraud.

Explanation of Solution

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.

AAS is to be relied on the unusual nature of the vendors and deliveries...

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Chapter 7 Solutions

Financial And Managerial Accounting
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