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Saved Problem x C Chegg StuayTo ms Reg-true& return Url https%3A%2F%2Fconnect.mheducation.com%2Fpaamweb%2Findex.html%23%2Fregistrati Secure https/newconnect.mheducatioh.com/flow/connecthtml?isReg-true&retur; Saved 5 Problem 8-1A Analyzing internal control LO C1 the principle(s) of internal control that is violated. Select what the business should do to 10 polnts For each of these five separate cases, identify ensure adherence to principles of internal control. Chi Han records all incoming customer cash receipts for her employer and posts the customer payments to their respective accounts Ask At Tico Company, Julia and Trevor alternate lunch hours. Julia is the petty cash 2. custodian, but if someone needs petty cash when she is at lunch. Trevor fills in as custodian Nori Nozumi posts all patient charges and payments at the Hopeville Medical Clinic. Each night Nori backs up the computerized accounting system to a tape and stores the tape in a locked file at her desk. 3. Ben Shales prides himself on hiring quality workers who require little supervision. As 4. office manager, Ben gives his employees full discretion over their tasks and for years has seen no reason to perform independent reviews of their work Carla Farah's manager has told her to reduce costs. Carla decides to raise the deductible on the plant's property insurance from $5,000 to $10,000 This cuts the property insurance premium in half. In a related move, she decides that bonding the plant's employees is a waste of money since the company has not experienced any losses due to employee theft. Carla saves the entire amount of the bonding insurance premium by dropping the bonding insurance 5.

Explanation / Answer

Following are the priciples of Internal control:

1. Segreation of dutites-  Assigning specific responsibilities to individuals ensures they understand what their part is in maintaining internal control.

2. Record Keeping- Memory is not an infallible tool, especially when dealing with large amounts of information or transactions. Having correct record-keeping procedures will enable companies to have an accurate history of transactions on hand.

3. Insurance and Bonding- By insuring assets and bonding employees, an organization can rest assured that it will be reimbursed for the value of an asset if the asset is stolen, or otherwise misappropriated.

4. Technological Controls- Bio metric devices, alarms, access control may help company to prevent unauthorized technological access.

5. Assets' record and custody- In internal control, person recoding and keeping records of assetsshould not be same as having custody those assets.

6. Independent Review- Company must reivew their internal controls periodically. This will double check any lack in controls and will ensure performance of controls.

7. Responsibility of related transactions- Sometimes several tasks are needs to complete to complete one task. Therefore more than one person should be allocated to that tas so that cross checking and repetition of same error can be reduced. and if there will be any difference then that can be caught.

8. Proper Authorization- This helps ensure that all company activities adhere to established guide lines unless responsible managers authorize another course of action.

Following above principles, we can conclude above problems (refer to S.no. for answer) as mentioned internal control leakage-

1. Violated principle- Proper Authorization

In this case 'Proper Authorization' principle is violated. Because there is no person who can authorize these cash receipts as well as double check whether these has been received or not. therefore we need to have one senior persoan or authorization to record these cash receipts other wise he can book wrong entries in books.

Also 'Assets' record keeping and records' are also violated because it may hapen that Chi Han may steal some money as he is the only one who is receiving and recording into books. So therefore there should be another person as well who can have custody of cash receipt separately.

2. Violated Principle- Separate responsiblities:

Here separate responsibilities should be given. Like wise both should be known their responsibilities for their particular timelines. Means when Julia is going for lunch she should match all the cash balance with books and should hand over to Trevor. and also she should sign a doucument on register or on books so that anyone can know that further entries are done by different person. For trevor he should also do the same, He should maintain proper cash balances and should know their cash balance he is taking care of after Julia. and also periodic review should be there for matching cash balances.

3. Violated principles: Record Keeping and technological control

Basically here is lack of record keeping control. As tape contains very sensitive information its better not to save that into any tape and disc becasue there is a chance that even whole file can be stolen. So its better to save that data only into the system by entering some password protocols or may save that some other server where data can be saved by following strict protocals. And access to that system should be allowed only through password or biometric devices.

4. Violated principle- Perform Independent review:

Error can be done by any human or we don't even know the objective of person behind doing anything. So even work are one by quality managers, proper independent review should be given periodcally so that any intentional or unintentional error or mistakes can be found. Even this will be like a threat that any unethical tak can be caught in independent review. Therefore there should be periodically review must be

5. Violated Principle- Insurance and Bonding

No one can know intention of anyone behind doing unethicak things. Earlier no theft was found because earlier company was having bonding for that. But now as company is not having employee binding there is a threat that any person can steal anything just to marking loss in companies account. Its good to have trust in your employeses but still precaution is better than cure that'swhy Carla should not cut the employees bonding and keep it the same.

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