Explain the components of internal control; evaluate internal controls
Response to the following problem:
Each of the following situations reveals an internal control weakness:
Situation a. In evaluating the internal control over cash payments of Burlington Manufacturing, an auditor learns that the purchasing agent is responsible for purchasing diamonds for use in the company's manufacturing process, approving the invoices for payment, and signing the checks. No supervisor reviews the purchasing agent's work.
Situation b. Wilma Klepper owns an architectural firm. Klepper's staff consists of 19 professional architects, and Klepper manages the office. Often, Klepper's work requires her to travel to meet with clients. During the past six months, Klepper has observed that when she returns from a business trip, the architecture jobs in the office have not progressed satisfactorily. Klepper learns that when she is away, two of her senior architects take over office management and neglect their normal duties. One employee could manage the office.
Situation c. Dale Potter has been an employee of the city of Southport for many years. Because the city is small, Potter performs all accounting duties, in addition to opening the mail, preparing the bank deposit, and preparing the bank reconciliation.