Deck 8: Fraud, Internal Control, and Cash

Question 1

The responsibility for keeping the records for an asset should be separate from the physical custody of that asset.

Answer 1

True

Question 2

The safeguarding of assets is an objective of a company's system of internal control.

Answer 2

True

Question 3

In order to prevent a transaction from being recorded more than once, a company should maintain only one book of original entry.

Answer 3

False

Question 4

In a voucher system, vouchers are prepared in the accounts receivable department.

Question 5

For efficiency of operations and better control over cash, a company should maintain only one bank account.

Question 6

Management is responsible for establishing a system of internal control.

Question 7

Checks received in the mail should be immediately stamped "NSF" to prevent unauthorized cashing of the check.

Question 8

Cash registers are an important internal control device used in controlling over-the-counter receipts.

Question 9

A highly automated computerized system of accounting eliminates the need for internal control.

Question 10

Control over cash disbursements is improved if major expenditures are paid by check.

Question 11

Only large companies need to be concerned with a system of internal control.

Question 12

Firms use physical controls primarily to safeguard their assets.

Question 13

An effective system of internal control requires that at least two individuals be assigned to one cash drawer so that each can serve as check on the other.

Question 14

A segregation of duties among employees eliminates the possibility of collusion.

Question 15

Requiring employees to take vacations is a weakness in the system of internal controls because it does not promote operational efficiency.

Question 16

Electronic Funds Transfer (EFT) is a disbursement system that uses telephone or computer to transfer cash from one location to another.

Question 17

The responsibility for ordering, receiving, and paying for merchandise should be assigned to different individuals.

Question 18

Internal control is most effective when several people are responsible for a given task.

Question 19

The extent of internal control features adopted by a company must be evaluated in terms of cost-benefit.

Question 20

Internal control is mainly concerned with the amount of authority a supervisor exercises over a subordinate.

Question 21

A deposit ticket is a negotiable instrument that can be transferred to another party by endorsement.

Question 22

If a company deposits all its receipts in the bank and pays all its bills by check, then the monthly bank statement balance will always agree with the company's record of its checking account balance.

Question 23

All reconciling items in determining the adjusted cash balance per books require the depositor to make adjusting journal entries to the Cash account.

Question 24

The duties of approving an item for payment and paying the item should be done by different departments or individuals.

Question 25

The petty cash fund eliminates the need for a bank checking account.

Question 26

Internal control consists of the plan of organization and all of the related methods and measures adopted within a business to (a) safeguard its assets, and (b) enhance the accuracy and reliability of its accounting records.

Question 27

A debit memorandum could show the collection of a note receivable by the bank.

Question 28

Checks from customers who pay their accounts promptly are called outstanding checks.

Question 29

In general, documents should be prenumbered and all documents should be accounted for.

Question 30

Which one of the following is not an objective of a system of internal controls?

A) Safeguard company assets
B) Overstate liabilities in order to be conservative
C) Enhance the accuracy and reliability of accounting records
D) Reduce the risks of errors

Question 31

Cash equivalents are highly liquid investments that can be converted into a specific amount of cash.

Question 32

Cash register overages are deposited in the petty cash fund and cash shortages are made-up from the petty cash fund.

Question 33

Internal controls are concerned with

A) only manual systems of accounting.
B) the extent of government regulations.
C) safeguarding assets.
D) preparing income tax returns.

Question 34

Personnel who handle cash receipts should have the option of taking a vacation or not.

Question 35

A bank reconciliation is generally prepared by the bank and sent to the depositor along with cancelled checks.

Question 36

To obtain maximum benefit from a bank reconciliation, the reconciliation should be prepared by an employee who has no other responsibilities pertaining to cash.

Question 37

The custodian of the petty cash fund has the responsibility of recording a journal entry every time cash is used from the fund.

Question 38

Cash which is restricted for a specific use should be separately reported.

Question 39

A voucher system is used by many large companies as a means of controlling cash receipts.

Question 40

Collusion may result when one individual circumvents prescribed controls and may significantly impair the effectiveness of a system.

Question 41

Companies that are subject to, but fail to comply with, the Foreign Corrupt Practices Act of 1977

A) may do so legally by obtaining an exemption.
B) will be automatically dissolved.
C) may be subject to fines and officer imprisonment.
D) may be forced to sell their foreign subsidiaries.

Question 42

An accounts payable clerk also has access to the approved supplier master file for purchases. The control principle of

A) establishment of responsibility is violated.
B) independent internal verification is violated.
C) documentation procedures is violated.
D) segregation of duties is violated.

Question 43

The Foreign Corrupt Practices Act requires that all U.S. corporations under the juris-diction of the Securities and Exchange Commission

A) have at least one foreign subsidiary.
B) maintain accounting records of foreign branches and subsidiaries in the local foreign currency.
C) maintain an adequate system of internal control.
D) must file reports with the National Commission on Fraudulent Financial Reporting.

Question 44

The independent internal verification principle involves each of the following except the ______________ of data prepared by other employees.

A) comparison
B) reconciliation
C) review
D) segregation

Question 45

The control principle related to not having the same person authorize and pay for goods is known as

A) establishment of responsibility.
B) independent internal verification.
C) segregation of duties.
D) rotation of duties.

Question 46

Controls that enhance the accuracy and reliability of the accounting records are

A) automated controls.
B) external controls.
C) mechanical and electronic controls.
D) physical controls.

Question 47

The principle of establishing responsibility does not include

A) one person being responsible for one task.
B) authorization of transactions.
C) independent internal verification.
D) approval of transactions.

Question 48

Joe is warehouse custodian and also maintains the accounting record of the inventory held at the warehouse. An assessment of this situation indicates

A) documentation procedures are violated.
B) independent internal verification is violated.
C) segregation of duties is violated.
D) establishment of responsibility is violated.

Question 49

From an internal control standpoint, the asset most susceptible to improper diversion and use is

A) prepaid insurance.
B) cash.
C) buildings.
D) land.

Question 50

Related selling activities do not include

A) ordering the merchandise.
B) making a sale.
C) shipping the goods.
D) billing the customer.

Question 51

The importance of a good system of internal controls was recognized with the passage of

A) the Securities and Exchange Act of 1933.
B) the Securities and Exchange Act of 1994.
C) the Blue Sky Laws.
D) the Foreign Corrupt Practices Act of 1977.

Question 52

When two or more people get together for the purpose of circumventing prescribed controls, it is called

A) a fraud committee.
B) collusion.
C) a division of duties.
D) bonding of employees.

Question 53

The custodian of a company asset should

A) have access to the accounting records for that asset.
B) be someone outside the company.
C) not have access to the accounting records for that asset.
D) be an accountant.

Question 54

Internal controls are not designed to safeguard assets from

A) natural disasters.
B) employee theft.
C) robbery.
D) unauthorized use.

Question 55

Having one person post entries to accounts receivable subsidiary ledger and a different person post to the Accounts Receivable Control account in the general ledger is an example of

A) inadequate internal control.
B) duplication of effort.
C) external verification.
D) segregation of duties.

Question 56

Two individuals at a retail store work the same cash register. You evaluate this situation as

A) a violation of establishment of responsibility.
B) a violation of segregation of duties.
C) supporting the establishment of responsibility.
D) supporting internal independent verification.

Question 57

Related buying activities include

A) ordering, receiving, paying.
B) ordering, selling, paying.
C) ordering, shipping, billing.
D) selling, shipping, paying.

Question 58

Internal auditors

A) are hired by CPA firms to audit business firms.
B) are employees of the IRS who evaluate the internal controls of companies filing tax returns.
C) evaluate the system of internal controls for the companies that employ them.
D) cannot evaluate the system of internal controls of the company that employs them because they are not independent.

Question 59

Having one person responsible for the related activities of ordering merchandise, receiving goods, and paying for them

A) increases the potential for errors and fraud.
B) decreases the potential for errors and fraud.
C) is an example of good internal control.
D) is a good example of safeguarding the company's assets.

Question 60

Internal control is defined, in part, as a plan that safeguards

A) all balance sheet accounts.
B) assets.
C) liabilities.
D) capital stock.

Question 61

Allowing only designated personnel to handle cash receipts is an example of

A) establishment of responsibility.
B) segregation of duties.
C) documentation procedures.
D) independent internal verification.

Question 62

Postage stamps on hand are considered to be

A) cash.
B) petty cash.
C) cash equivalents.
D) a prepaid expense.

Question 63

A company stamps checks received in the mail with the words "For Deposit Only". This endorsement is called a(n)

A) blank endorsement.
B) rubber stamp.
C) restrictive endorsement.
D) operational endorsement.

Question 64

In large companies, the independent internal verification procedure is often assigned to

A) computer operators.
B) management.
C) internal auditors.
D) outside CPAs.

Question 65

Which one of the following items would not be considered cash?

A) Coins
B) Money orders
C) Currency
D) Postdated checks

Question 66

The use of remittance advices for mail receipts is an example of

A) documentation procedures.
B) other controls.
C) physical controls.
D) independent internal verification.

Question 67

Checks received through the mail should

A) immediately be endorsed "For Deposit Only."
B) be sent to the accounts receivable subsidiary ledger clerk for immediate posting to the customer's account.
C) be cashed at the bank as soon as possible.
D) be "rung up" on a cash register immediately.

Question 68

A system of internal control

A) is infallible.
B) can be rendered ineffective by employee collusion.
C) invariably will have costs exceeding benefits.
D) is premised on the concept of absolute assurance.

Question 69

Reconciling the bank statement monthly is an example of

A) segregation of duties.
B) independent internal verification.
C) establishment of responsibility.
D) documentation procedures.

Question 70

For accounting purposes, postdated checks (checks payable in the future) are considered to be

A) money orders.
B) cash.
C) petty cash.
D) accounts receivable.

Question 71

Control over cash disbursements is generally more effective when

A) all bills are paid in cash.
B) disbursements are made by the accounts payable subsidiary clerk.
C) payments are made by check.
D) all purchases are made on credit.

Question 72

Maximum benefit from independent internal verification is obtained when

A) it is made on a pre-announced basis.
B) it is done by the employee possessing custody of the asset.
C) discrepancies are reported to management.
D) it is done at the time of the audit.

Question 73

Allowing only the treasurer to sign checks is an example of

A) documentation procedures.
B) segregation of duties.
C) other controls.
D) establishment of responsibility.

Question 74

Proper control for over-the-counter cash receipts includes

A) a cash register with totals visible to the customer.
B) using electronic cash registers with no tapes.
C) cash count sheets requiring only the supervisor's signature.
D) cash count sheets requiring only the cashier's signature.

Question 75

If employees are bonded

A) it means that they are not allowed to handle cash.
B) they have worked for the company for at least 10 years.
C) they have been insured against misappropriation of assets.
D) it is impossible for them to steal from the company.

Question 76

Physical controls to safeguard assets do not include

A) cashier department supervisors.
B) vaults.
C) employee identification badges.
D) security guards.

Question 77

An exception to disbursements being made by check is acceptable when cash is paid

A) to an owner.
B) to employees as wages.
C) from petty cash.
D) to employees as loans.

Question 78

Blank checks

A) should be safeguarded.
B) should be pre-signed.
C) do not need to be safeguarded since they must be signed to be valid.
D) should not be prenumbered.

Question 79

Mrs. Smith has worked for Grand Inc., for 20 years without taking a vacation. An internal control feature that would address this situation would be

A) other controls.
B) establishment of responsibility.
C) physical controls.
D) documentation procedures.

Question 80

The daily cash count of cash register receipts made by department supervisors is an example of

A) other controls.
B) independent internal verification.
C) establishment of responsibility.
D) segregation of duties.