Short Case 1
As an auditor, you have discovered the following problems with the accounting system of Jefferson Retailers. For each of the following occurrences, tell which of the five internal control activities or procedures was lacking. Also, recommend how the company should change its procedures to avoid the problem in the future.
1. Jefferson Retailers’ losses due to bad debts have increased dramatically over the past year. In an effort to increase sales, the managers of certain stores have allowed large credit sales to occur without review or approval of the customers.
2. An accountant hid his theft of $200 from the company’s bank account by overstating outstanding checks on monthly reconciliation. He believed the manipulation would not be discovered.
3. Michael Meyer works in a storeroom. He maintains the inventory records, counts the inventory, and has unlimited access to the storeroom. He occasionally steals items of inventory and hides his thefts by overstating the physical inventory records.
4. Receiving reports are sometimes filled out days after shipments have arrived