Fundamental Accounting Principles 22th Edition by John Wild ,Ken Shaw,Barbara Chiappetta

Exercise 39

Franco Company is a rapidly growing start-up business. Its recordkeeper, who was hired six months ago, left town after the company's manager discovered that a large sum of money had disappeared over the past three months. An audit disclosed that the recordkeeper had written and signed several checks made payable to her fiancé and then recorded the checks as salaries expense. The fiancé, who cashed the checks but never worked for the company, left town with the recordkeeper. As a result, the company incurred an uninsured loss of $184,000. Evaluate Franco's internal control system and indicate which principles of internal control appear to have been ignored.