For Each of the Independent Cases Below, Identify the Principle

question 161

Essay

For each of the independent cases below, identify the principle of internal control that is violated, and recommend what should be done to remedy the violation.
1. In order to save money, Regal Company has decided to drop its property insurance on assets; and stop bonding the cashiers who handle about $10,000 in cash each day.
2. Halton Company records each sale on a preprinted invoice. Since sometimes invoices are damaged in the process of being prepared, the invoices are not prenumbered, but the sales clerk writes the next number onto each invoice.
3. Marion Company is a very small business. Bob Lepley, one of the two office clerks, opens the mail each day and removes the cash receipts that come in the mail. Bob then records the receipts in the cash records and the customer's account and deposits the cash in the bank.
4. Gerald McNichols, the owner of McNichols Company prides himself on hiring only the most competent employees. McNichols believes that since these employees are highly competent and to show that he trusts them completely, he feels there is no need for anyone to check up on the employees' performance.
5. Service Products is a small business with only 3 accounting employees. Each employee is well-trained and so can perform any of the accounting tasks, including handling cash receipts and cash disbursements, and preparing the bank reconciliation.

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Definitions:

Financing

The process of providing funds for business activities, making purchases, or investing.

Management Consultant

is a professional advisor who helps organizations improve their performance, primarily through the analysis of existing organizational problems and the development of plans for improvement.

Financial Condition

The status of an entity's finances, encapsulating its assets, liabilities, equity, and overall financial health and stability.

Tax Planning

The process of analyzing a financial plan or situation with the goal of ensuring tax efficiency.