Problem 13.

1 Which internal control procedure would be most cost-

effective in dealing with the following expenditure cycle threats?

a. A purchasing agent orders materials from a supplier that he partially

owns.
Used approved suppliers, EDI
b. Receiving dock personnel steal inventory and then claim the
inventory was sent to the warehouse.
Document inventory transfers
c. An unordered supply of laser paper delivered to the office is accepted
and paid for because the “price is right”. After jamming all of the
laser printers, however, it becomes obvious that the “bargain” paper is
of inferior quality.
Require quality certification
Monitor supplier performance
d. The company fails to take advantage of a 1% discount for
promptly paying a vendor invoice.
file invoices by due date
cash flow budgets
e. A company is late in paying a particular invoice. Consequently, a
second invoice is sent, which crosses the first invoice’s payment in
the mail. The second invoice is submitted for processing and also
paid.
Require voucher package
Pay only original invoices
Cancel supporting documents
f. Inventory records show that an adequate supply of copy paper
should be in stock, but none is available on the supply shelf.
Do not provide quantity info when receiving
Require employee signature
g. The inventory records are incorrectly updated when a receiving dock
employee enters the wrong product number at the terminal.
Bar codes
RFID
h. A clerical employee obtains a blank check and writes a large amount
payable to a fictitious company. The employee then cashes the
check.
 Segregation of duties
Dual signatures
i. A fictitious invoice is received and used to pay for goods that were
never ordered or delivered.
Verify accuracy (purchase order, receiving report, and invoice)
j. The petty cash custodian confesses to having “borrowed” $12,000
over the last 5 years.
Detailed receipts
k. A purchasing agent adds a new record to the supplier master file. The
company does not exist. Subsequently, the purchasing agent submits
invoices from the fake company for various cleaning services. The
invoices are paid.
Restricted access
l. A clerk affixes a price tag intended for a low-end flat-panel TV to a
top of the line model. The clerk’s friend then purchases that item,
which the clerk scans at the checkout counter.
Physical count of inventory, shouldn’t have access to the price tag

Problem 13.8 What is the purpose of each of the following

control procedures?

a. Cancellation of the voucher package by the cashier after

signing the check – so it’s not paid for twice
b. Separation of duties of approving invoices for payment and
signing checks.- to avoid theft
c. Prenumbering and periodically accounting for all purchase
orders. – theft, unauthorized purchases
d. Periodic physical count of inventory.- to avoid theft,
reconciliation so that any entry error are detected, loss in good
e. Requiring two signatures on checks for large amounts.- theft
of cash
f. Requiring that a copy of the receiving report be routed
through the inventory stores department prior to going to
accounts payable – paying for items not received
g. Requiring a regular reconciliation of the bank account by
someone other than the person responsible for writing checks
– segregation of duties, errors
h. Maintaining an approved suppliers list and checking that all
purchase orders are issued only to suppliers on that list.