In Each of the Following Situations, Identify the Internal Control

question 156

Essay

In each of the following situations, identify the internal control weakness as well as the business's potential problem, and suggest a solution.
a)The law firm of Douglas and Gere has been extremely busy in recent months. It needs another lawyer, but has not had the chance to hire one. In the meantime, one of the secretaries has been preparing briefs, writing up wills, and preparing the closing papers for various real estate deals.
b)Tobey Smith, an accounting clerk, is responsible for opening the mail, recording and depositing cash receipts, as well as preparing the monthly bank reconciliation. Tobey has not taken a vacation in over five years.
c)Carole Tobias purchases supplies for Darcey Company and stores them in a locked room for which she has the key. She is also responsible for distributing these supplies to employees upon request. At the end of each month, Carole takes an inventory of the supplies on hand and notifies the accounting department of the amount of the adjusting entry for supplies used.

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Definitions:

Payback Technique

A method of investment appraisal that calculates the time required to recoup the cost of an investment.

Internal Rate of Return

A financial metric used to evaluate the profitability of an investment, representing the interest rate at which the net present value of costs and benefits of the investment are equal.

Net Present Value

A financial metric that calculates the difference between the present value of cash inflows and the present value of cash outflows over a period of time.

Discount Rate

The interest rate used to determine the present value of future cash flows in discounted cash flow analysis.