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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 the frequency of deliveries 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 Accounting

14th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781305088436

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BuyFindarrow_forward

Financial Accounting

14th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781305088436
Chapter 8, Problem 7E
Textbook Problem
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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 the frequency of deliveries 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. Chapter 8, Problem 7E, All-Around Sound Co. discovered a fraud whereby one of its front office administrative employees What general internal control weaknesses contributed to this fraud?

To determine

State the general internal control weakness 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 8 Solutions

Financial Accounting
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