Homework ?11 (Chpts 5 & 12) value 1.91 points E5-4 Identifying Internal Control

ID: 2520958 • Letter: H

Question

Homework ?11 (Chpts 5 & 12) value 1.91 points E5-4 Identifying Internal Control Principles in Cash Payment Processes [LO 5-3] Home Repair Corp. (HRC) operates a building maintenance and repair business. The business has three office employees-a sales manager, a materials/crew manager, and an accountant. HRC's cash payments system is described below. Required: 1. For each statement (a 0, identify the intemal control principle being applied a that indicates the materials needed for the work at the repair site b. purchase order to supplilers of materials, advising them of the spedic materials needed and the repair site to C The materials/crew manager is the only employee authorized to order goods After a contract is signed with a customer, the sales manager prepares a prenumbered purchase requisition form Based on the purchase requisition form, the materials/crew manar prepares and sends a prenumbered which they should be delivered. Upon receiving a supplier's invoice, the accountant compares it to terms indicated on the purchase order, noting in d. the prices charged and quanbies ordered if these documents are in agreement, the accountant prepares a prenumbered check, stamps the invoice "paid, number on the purchase order HRC's owner prepares a monthly bank reconaililation and reviews checks retuned with the bank statement to ensure hey have beon issued to valid suppliers. e. and prepares a journal entry to record the payment. The journal entry explanation references the sequental 3. Ater several months, HRC's maberials/orew manager is arrested for having $20,000 of materials delivered to his home but charged to the company. Identity the internal control weakness The materialsicrew manager's order should have been verifed by the department head Purchase orders were nof prepared on the basis of prenumbered requisition forms There was no way to independentdy verity that amourts charged by suppliers were for goods that had benn delivered to ?thorized wok- A copy of the purchase order was not sent to the repair site.

Explanation / Answer

Requirement 1:

Item no.

Internal control principle to be applied

The procurement manager shall be asked to verify the requisition prepared by the sales manager

The purchase order shall be checked and verified to ensure that the repair site mentioned for the delivery purpose is that of the organization.

The inventory manager to should check the materials received from vendor to ensure that these are of proper quality in of required quantity.

To note any discrepancies in the quality, quantity and prices of the material received with that of the purchase order

The person responsible to verify the document must be different from th person recording the journal entries.

Checking the bank statements to ensure that the payments have been credited to the actual vendors.

Requirement 3:

The internal control weakness that allowed the theft to occur is as following:

There was no way to independently verify that amounts charged by suppliers were for goods that had been delivered to authorized work site.