The authorization of production occurs in the production planning and control department based on orders received from customers or analysis of sales forecasts and inventory requirements. Production planning and control is also responsible for monitoring materials and labor usage, and tracking the progress on production orders until they are completed and transferred to finished goods.
Controls should be in place to ensure that all production orders are approved. In addition, signed materials issue slips for approved production orders should be required for all materials released to production.
1. What are some consequences that could result from management's failure to implement an efficient production plan?
Asset misappropriations are schemes in which the perpetrators steal or misuse an organization's resources.
Opportunities to misappropriate assets increase when there are (1) large amounts of cash on hand or processed, (2) inventory items that are small in size, of high value, or high demand, and (3) easily convertible assets, such as bearer bonds or gems.
In addition, inadequate internal control over assets may increase the susceptibility of misappropriation of those assets. Misappropriation of assets may occur because of:
- Inadequate segregation of duties or independent checks.
- Inadequate record keeping with respect to assets.
- Inadequate system of authorization and approval of transactions.
- Inadequate physical safeguards over cash, investments, inventory, or fixed assets.
- Lack of complete and timely reconciliations of assets.
2. What are some controls to mitigate skimming schemes involving unrecorded cash?
Sometimes adverse relationships between the company and employees may lead to fraudulent acts such as embezzlement, theft, and false benefit claims. Employees may feel that they are ill-treated and they want to get even. The negative employee-employer relationship may lead to the misappropriation of funds and the theft of inventory and equipment through a violation of trust.
3. Please describe a control that would prevent or detect theft of inventory, supplies, or equipment.