Case Study 2
(Learning Objectives 2, 4: Explain the components of internal control; evaluate internal controls) Each of the following situations reveals an internal control weakness:
Situation a. In evaluating the internal control over inventory for the Williams Oil Services Company, an auditor learns that the warehouse receiving clerk is responsible for ordering parts for supply inventory use in drilling services, counts the inventory when received at the dock, records the receipts into the inventory ledger, and takes the annual inventory, No supervisor reviews the receiving clerk’s work.
• The missing internal control that is a weakness for this company is Monitoring Control. This component consists of the understanding of how management monitors its control and how effective this monitoring is. The clerk should not be the only person in control of the entire inventory process from start to finish. …show more content…
Separation of duties will decrease the likelihood of theft. Without the separation of duties, such as in this case, an employee can manipulate the records and perpetrate theft without anyone knowing since he has control of the entire process; this type of action increases the possibility of theft and fraud as well as increasing the risk of errors. The same individual should not be responsible for all related activities and in order to reduce the risk of theft and errors, those activities needs to be spread out to others. Independent verification would decrease the possibility of theft or error and keep employees honest if they know their work can be inspected at any point in time without warning.
• Control activities are missing in this scenario as well as being a weakness. Management should have policies and procedures in place to reduce fraud and address risks the company faces. Physical controls are also a missing internal control that goes along with this. Physical controls safeguard assets and increases accounting records accuracy. Employees need to know what the rules are, what is expected of them and what the consequences are for violating set …show more content…
Management has the responsibility of disseminating the values of the company and making sure employees understand that there is zero tolerance for unethical activity. All employees should know what is expected of them and every other employee and everything should be consistent across the board. This would involve establishment of responsibility where control is more effective when a single person is responsible for one task and making all employees aware of the anti-discrimination laws and having HR personnel make decisions based on these laws, giving classes on what sexual harassment is, what sexual harassment laws are and implementing a system to address complaints are actions that should be implemented in this
(Learning Objectives 2, 4: Explain the components of internal control; evaluate internal controls) Each of the following situations reveals an internal control weakness:
Situation a. In evaluating the internal control over inventory for the Williams Oil Services Company, an auditor learns that the warehouse receiving clerk is responsible for ordering parts for supply inventory use in drilling services, counts the inventory when received at the dock, records the receipts into the inventory ledger, and takes the annual inventory, No supervisor reviews the receiving clerk’s work.
• The missing internal control that is a weakness for this company is Monitoring Control. This component consists of the understanding of how management monitors its control and how effective this monitoring is. The clerk should not be the only person in control of the entire inventory process from start to finish. …show more content…
Separation of duties will decrease the likelihood of theft. Without the separation of duties, such as in this case, an employee can manipulate the records and perpetrate theft without anyone knowing since he has control of the entire process; this type of action increases the possibility of theft and fraud as well as increasing the risk of errors. The same individual should not be responsible for all related activities and in order to reduce the risk of theft and errors, those activities needs to be spread out to others. Independent verification would decrease the possibility of theft or error and keep employees honest if they know their work can be inspected at any point in time without warning.
• Control activities are missing in this scenario as well as being a weakness. Management should have policies and procedures in place to reduce fraud and address risks the company faces. Physical controls are also a missing internal control that goes along with this. Physical controls safeguard assets and increases accounting records accuracy. Employees need to know what the rules are, what is expected of them and what the consequences are for violating set …show more content…
Management has the responsibility of disseminating the values of the company and making sure employees understand that there is zero tolerance for unethical activity. All employees should know what is expected of them and every other employee and everything should be consistent across the board. This would involve establishment of responsibility where control is more effective when a single person is responsible for one task and making all employees aware of the anti-discrimination laws and having HR personnel make decisions based on these laws, giving classes on what sexual harassment is, what sexual harassment laws are and implementing a system to address complaints are actions that should be implemented in this