Fundamentals of Financial Accounting 4th Edition by Fred Phillips,Robert Libby,Patricia Libby

Exercise 44

Identifying Internal Control Weaknesses in Descriptions of Cash Payment Processes
Each situation below describes an internal control weakness in the cash payments process. Identify which of the five internal control principles is violated, explain the weakness, and then suggest a change that would improve internal control.
a. The warehouse clerk is responsible for ordering inventory when levels become low and advising the accounting department to issue a payment to the supplier when ordered goods are received.
b. For each purchase, the accountant compares the purchase order (prepared by the purchasing manager) to the receiving report (prepared by warehouse employees), and then attaches these documents to the corresponding supplier invoice and files them by supplier name. The accountant then prepares a check, which the owner merrily signs and sends to the mail clerk for mailing.
c. The check-signing machine is stored with a supply of blank checks in the lunch room closet.
d. Purchase orders can be approved by the purchasing manager, accountant, or warehouse supervisor, depending on who is least busy.