PROBLEMS-SET A P7-1A. Internal Control Regent Company encountered the following
ID: 2341771 • Letter: P
Question
PROBLEMS-SET A P7-1A. Internal Control Regent Company encountered the following situations: LO2, 4 The person who opens the mail for Regent, Bill Stevens, stole a check from a customer and cashed it. To cover up the theft, he debited Sales Returns and Allowances and credited Accounts Receivable in the general ledger. He also posted the amount to the customer's account in the ac- counts receivable subsidiary ledger. The purchasing agent, Susan Martin, used a company purchase order to order building materials from Builders Mart. Later, she telephoned Builders Mart and changed the delivery address to her home address. She told Builders Mart to charge the material to the company. At month-end, she approved the invoice from Builders Mart for payment. Nashville Supply Company sent two invoices for the same order: the first on June 10 and the second on July 20. The accountant authorized payment of both invoices and both were paid. On January 1, Jack Monty, a junior accountant for Regent, was given the responsibility of record- ing all general journal entries. At the end of the year, the auditors discovered that Monty had made 150 serious errors in recording transactions. The chief accountant was unaware that Monty had been making mistakes. a. b. c. d. Required For each situation, describe any violations of good internal control procedures and identify the steps that you would take to prevent each situation.Explanation / Answer
Answer A.
Regent lacks IT controls wherein, the books of accounts had to be protected by passwords and only the authorised personnel should've been allowed to access them. Regent also lacks segregation of duties as the person responsible for collecting mails has to be different from the person encashing the cheques.
The following are the steps that have to be taken by Regent in order to prevent any such situations further:
Answer B.
Regent in this case is lacking segregation of duties. It seems too much authority is given to the purchasing agent which can lead to serious frauds. The following are the steps that have to be adopted by Regent:
Answer C.
Regent is lacking approval authority and periodic reconciliations controls here.
The following are the ways by which Regent can avoid such errors in future:
Answer D.
Regent is lacking authority and responsibility here.
The following are the steps that are to be taken:
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