14.2. What internal control procedure(s) would best prevent or detect the follow

Question

14.2.

What internal control procedure(s) would best prevent or detect the following problems?

a. A production order was initiated for a product that was already overstocked in the company’s warehouse.

b. A production employee stole items of work-in-process inventory.

c. The “rush-order” tag on a partially completed production job became detached from the materials and lost, resulting in a costly delay.

d. A production employee entered a materials requisition form into the system in order to steal $300 worth of parts from the raw materials storeroom.

e. A production worker entering job-time data on an online terminal mistakenly entered 3,000 instead of 300 in the “quantity-completed” field.

f. A production worker entering job-time data on an online terminal mistakenly posted the completion of operation 562 to production order 7569 instead of production order 7596.

g. A parts storeroom clerk issued parts in quantities 10% lower than those indicated on several materials requisitions and stole the excess quantities.

h. A production manager stole several expensive machines and covered up the loss by submitting a form to the accounting department indicating that the missing machines were obsolete and should be written off as worthless.

i. The quantity-on-hand balance for a key component shows a negative balance.

j. A factory supervisor accessed the operations list file and inflated the standards for work completed in his department. Consequently, future performance reports show favorable budget variances for that department.

k. A factory supervisor wrote off a robotic assembly machine as being sold for salvage but actually sold the machine and pocketed the proceeds.

l. Overproduction of a slow-moving product resulted in excessive inventory that had to eventually be marked down and sold at a loss.

Explanation / Answer

a. A production order was initiated for a product that was already overstocked in the company’s warehouse. Approval Authority

b. A production employee stole items of work-in-process inventory. Physical Audits

c. The “rush-order” tag on a partially completed production job became detached from the materials and lost, resulting in a costly delay. Documentation

d. A production employee entered a materials requisition form into the system in order to steal $300 worth of parts from the raw materials storeroom. Access Controls

e. A production worker entering job-time data on an online terminal mistakenly entered 3,000 instead of 300 in the “quantity-completed” field. Reconciliations

f. A production worker entering job-time data on an online terminal mistakenly posted the completion of operation 562 to production order 7569 instead of production order 7596. Reconciliations

g. A parts storeroom clerk issued parts in quantities 10% lower than those indicated on several materials requisitions and stole the excess quantities. Separation of Duties

h. A production manager stole several expensive machines and covered up the loss by submitting a form to the accounting department indicating that the missing machines were obsolete and should be written off as worthless. Physical Audits

i. The quantity-on-hand balance for a key component shows a negative balance. Physical Audits

j. A factory supervisor accessed the operations list file and inflated the standards for work completed in his department. Consequently, future performance reports show favorable budget variances for that department. Access Controls

k. A factory supervisor wrote off a robotic assembly machine as being sold for salvage but actually sold the machine and pocketed the proceeds. Physical Audits

l. Overproduction of a slow-moving product resulted in excessive inventory that had to eventually be marked down and sold at a loss. Approval Authority

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