Exam 7: Internal Control and Cash

All of the following parties are involved when bank credit cards are used to make a retail sale EXCEPT

Proper control for over-the-counter cash receipts includes

Which of the following factors does NOT contribute to fraudulent activities?

An example of physical and IT controls would NOT include which of the following?

All of the following are considered to be cash EXCEPT

The increased use of debit and credit cards improve a company's internal control.

A risk assessment of a company's internal control would be done by the company's insurance agent.

Pacific Used Books sells all of its products by "mail order." Customers can select their purchases from an online catalogue. Once the books are selected, the customer sends an order in by e-mail, then prints out the e-mail and mails it in with a cheque. For individual customers, Pacific does not send out the order until the payment is received. For corporate customers like bookstores, Pacific will send out the order with an invoice before payment is received. Occasionally, "walk in" customers will come in to purchase specific books. These customers are expected to pay cash, and the receptionist prepares the invoices and takes the cash for the cash transactions. The following procedures relate to the handling of cash payments from customers: 1. Pacific's mail clerk opens all of the mail, which usually takes him the entire day. Orders from customers are placed in one file folder and the cheques received are placed in another file folder. 2. The cheques are delivered to the Accounts Receivable department at the end of the day, and placed in a filing cabinet by Joanie, the Accounts Receivable clerk. The file folder of orders is given to the shipping department. 3. The following morning Joanie prepares a bank deposit with all of the cheques received the previous day, and gives it to the receptionist to hold in her desk drawer. 4. At the end of the day, the receptionist adds any cash received from "walk in customers" to the deposit and then takes the deposit to the bank on her way to the bus stop. 5. From a photocopy of the bank deposit slip, Joanie prepares a list for the shipping department indicating which customer's orders have been paid so that they know which orders are cleared for shipping. If the list includes payments from corporate customers, the shipping department ignores this information, assuming the orders have been sent previously. 6. Working from a photocopy of the bank deposit slip, Joanie enters the customer payments in the accounts receivable subledger, and records the cash received in the cash receipts journal. 7. At the end of the month, Joanie adds up all of the bank deposit slips, and reconciles this amount to the total cash receipts (per the cash receipts journal) for the month. There is very seldom a difference between the two amounts. Instructions a. For each procedure, explain one weakness in internal control. b. For each procedure, identify the control activity that is violated. c. For each weakness, recommend an improvement that will increase internal control over cash receipts.

Which of the following is NOT an example of financial pressure to commit fraud?

In applying the control activity of segregation of duties, the responsibility for related activities should be assigned to the same individual.

The most important element of the fraud triangle is rationalization.

One advantage of a debit card is that the retailer knows immediately whether the customer has enough money in their account to pay for the transaction.

Internal auditors are company employees.

Internal control is the responsibility of the external auditor of the organization.

Andrea Portowski has worked for Dr. Lee Hum for several years. Andrea demonstrates a loyalty that is rare among employees. She hasn't taken a vacation in the last four years. One of Andrea's primary duties at the medical office is to open the mail and list the cheques received. She also takes cash from patients at the cashier window as patients leave. At times it is so hectic that Andrea doesn't bother with giving each patient a receipt for the cash paid on their accounts. She assures them she will see to it that they receive the proper credit. When the traffic is slow in the office, Andrea offers to help the bookkeeper post the payments to the patients' accounts receivable. She is always happy to receive Andrea's help, because she is a very conscientious worker. Instructions Identify any internal control activities that may be violated in this medical office situation.

All private companies are required to have an external audit.

The following information is taken from the accounting records of Joudrey Law Firm at December 31, 2014, the firm's year end. 1. The firm has two chequing accounts: - The general account has a balance of $67,000 after all adjustments and is used to pay for the firm's operating expenses. - The trust account has a balance of $450,000 and contains funds belonging to clients, which can only be used on behalf of the clients to whom the funds belong. 2. The firm has a savings account balance of $22,400 after recording $90 in December interest revenue. 3. On December 31, a client paid a $1,500 invoice in cash. The office manager did not have time to take the funds to the bank on December 31, so the money was locked in the firm's safe. 4. The senior manager took $400 of the cash from the safe for personal use, and left an "IOU" note. He repaid the cash on January 3, 2015. 5. In the safe there are two post dated cheques from clients totalling $25,000. Both are dated February 28, 2015. Instructions Prepare a partial balance sheet for Joudrey Law Firm at December 31 showing how this information should be presented. Assume the firm has no accounts receivable other than those described in the above information.

Internal control helps an organization achieve all of the following EXCEPT

A bank statement