Response to the following problem:
Each of the following situations has an internal control weakness.
a. MiniScribe Corporation, a private company, has never had an audit. MiniScribe's accountants falsified sales and inventory figures in order to get an important loan. The loan went through, but MiniScribe later went bankrupt and couldn't repay the bank.
b. Discount stores such as Target and Sam's receive a large portion of their sales revenue in cash, with the remainder in credit-card sales. To reduce expenses, one store manager ceases purchasing fidelity bonds on the cashiers.
c. The office supply company where Champs Sporting Goods purchases cash receipt forms recently notified Champs that their receipt forms were not prenumbered. Alex Champ, the owner, replied that he never uses the receipt numbers.
d. Centex Software specializes in programs with accounting applications. The company's most popular program prepares the journal, accounts receivable subsidiary ledger, and general ledger. In the company's early days, the owner and eight employees wrote the computer programs, sold the products to stores such as ComputerWorld, and performed the accounting. As the company has grown, the number of employees has increased dramatically. Recently, development of a new software program stopped while the programmers redesigned Centex's accounting system. Centex's accountants could have performed this task.
e. Lana Turner, a widow with no known sources of outside income, has been a trusted employee to Stone Products Company for 15 years. She performs all cash-handling and accounting duties, including opening the mail, preparing the bank deposit, accounting for all aspects of cash and accounts receivable, and preparing the bank reconciliation. She has just purchased a new Mercedes and a new home in an expensive suburb. Jeremy Stone, owner of the company, wonders how turner can afford these luxuries.
Required:
1. Identify the missing internal control characteristics in each situation.
2. Identify the possible problem caused by each control weakness.
3. Propose a solution to each internal control problem.