Below are descriptions of internal control problems. In the space to the left of

Question

Below are descriptions of internal control problems. In the space to the left of each item, enter the code letter of the one best internal control principle that is related to the problem described.

Internal Control Principles
A. Establishment of responsibility
B. Segregation of duties
C. Physical, mechanical, and electronic control devices
D. Documentation procedures
E. Independent internal verification
F. Other controls
___ 1. The same person opens incoming mail and posts the accounts receivable subsidiary ledger.
___ 2. Three people handle cash sales from the same cash register drawer.
___ 3. A clothing store is experiencing a high level of inventory shortages because people try on clothing and walk out of the store without paying for the merchandise.
___ 4. The person who is authorized to sign cheques approves purchase orders for payment.
___ 5. Some cash payments are not recorded because cheques are not prenumbered.
___ 6. Cash shortages are not discovered because there are no daily cash counts by supervisors.
___ 7. The comptroller of the company has not taken a vacation for over 20 years.

Explanation / Answer

1 B There is no segreggation of duties in this case as the same person opens incoming mail and posts the Accounts Receivable Subsidary ledger 2 A Establishment of Responsibility : Although three people handle cash sales from the same register, no one has been given responsibility for the same. 3 C There is clearly no control to detect thefts 4 B Again , here there is no segreggation of duties 5 D This is a documentation problem because the cheques are not prenumbered. 6 E The cash has to be physically verified daily 7 F This comes under other controls

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