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Listed Below Are Seven Errors or Problems Which Might Occur

Question 46

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Listed below are seven errors or problems which might occur in the processing of cash transactions. Also shown is a list of internal control principles. Evaluate each possible error and cite a principle that is listed that would reduce the probability of the error occurring. If none of the principles given will correct the problem, write "None." If you think more than one principle is appropriate, list all principles that apply.

Premises:

Responses:

An employee steals the cash collected from a customer for an account receivable and conceals this theft by issuing a credit memorandum indicating that the customer returned the merchandise.

Establishment of responsibility

A small fire destroys 3 days of cash receipts.

Segregation of duties

The official designated to sign checks is able to steal blank checks and issue them without fear of detection.

Physical controls

A salesclerk in serving customers often rings up a sale for less than the actual amount and then keeps the additional cash collected from the customer.

Documentation procedures

Three cashiers use one cash register drawer and the cash in the drawer is often short of the balance kept on hand.

Independent internal verification

Each cashier counts his own register drawer each day and verbally reports the results to the supervisor.

Human resource controls

Cashiers with over 5 years’ experience are not bonded.

Premises:

An employee steals the cash collected from a customer for an account receivable and conceals this theft by issuing a credit memorandum indicating that the customer returned the merchandise.

A small fire destroys 3 days of cash receipts.

The official designated to sign checks is able to steal blank checks and issue them without fear of detection.

A salesclerk in serving customers often rings up a sale for less than the actual amount and then keeps the additional cash collected from the customer.

Three cashiers use one cash register drawer and the cash in the drawer is often short of the balance kept on hand.

Each cashier counts his own register drawer each day and verbally reports the results to the supervisor.

Cashiers with over 5 years’ experience are not bonded.

Responses:

Establishment of responsibility

Segregation of duties

Physical controls

Documentation procedures

Independent internal verification

Human resource controls

Correct Answer:

Premises:

Responses:

An employee steals the cash collected from a customer for an account receivable and conceals this theft by issuing a credit memorandum indicating that the customer returned the merchandise.

A small fire destroys 3 days of cash receipts.

The official designated to sign checks is able to steal blank checks and issue them without fear of detection.

A salesclerk in serving customers often rings up a sale for less than the actual amount and then keeps the additional cash collected from the customer.

Three cashiers use one cash register drawer and the cash in the drawer is often short of the balance kept on hand.

Each cashier counts his own register drawer each day and verbally reports the results to the supervisor.

Cashiers with over 5 years’ experience are not bonded.