In Each of the Following Situations, Identify the Internal Control

question 81

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. Susan Scandal purchases supplies for Fraud Fortress 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, Susan takes an inventory of the supplies on hand and notifies the accounting department of the amount for the adjusting entry for supplies used.
b. Jim Devious, an accounting clerk, is responsible for opening the mail, recording and depositing cash receipts, and preparing the monthly bank reconciliation. Jim has not taken a vacation in over five years.
c. The law firm of Dewey, Cheatem & Howe has been extremely busy in recent months. The firm 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.

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Definitions:

Perfectly Price-Discriminated

A pricing strategy situation where a seller charges the maximum possible price for each unit consumed that consumers are willing to pay, thereby capturing all potential consumer surplus.

Perfect Price Discrimination

The act of charging each consumer the maximum price that they are willing to pay for a product, thereby capturing the entire consumer surplus.

Consumer Surplus

The disparity in the consumers' desired payment amount for a good or service and the actual expense they bear.

Natural Monopoly

A market condition where a single firm can supply a product or service at a lower cost than any potential competitor, often due to economies of scale.