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It is important that companies assess their risks of workplace fraud. Managers/owners must also possess the skills to identify workplace fraud and consequently establish INTERNAL CONTROLS to effectively CH 7 ACTIVITY - WORKPLACE FRAUD minimize the risks of such fraud. 1. For each of the following scenarios: A. Identify which of the 3 MAJOR TYPES OF WORKPLACE FRAUD is likely to occur. B. Recommend ONE of the 7 INTERNAL CONTROLS which may effectively minimize this fraud. Scenario 1: As part of her computer programming duties, Brandi Marks adds new suppliers to her company's accounts payable system. Brandi also manages accounts payable and signs checks payable to suppliers. Brandi recently added several new suppliers to the accounts payable system. Scenario 2: Pena Co. has its employees write down their hours worked in a manual ledger. One employee consistently claims more unscheduled overtime hours than any other employee. Scenario 3: Gibson Co. pays its accountant a bonus based on its financial performance. The accountant understated the company's expenses in its most recent income statement. Scenario 4: An employee refuses to buy goods from a potential supplier unless that supplier hires the employee's wife. Scenario 5: Ace Electronics is a major wholesaler of electronic equipment. The company's inventory manager is responsible for ordering inventory and paying suppliers. Recently, warehouse employees reported several large shipments of cell phones missing. assess CH 7 ACTIVITY - INTERNAL CONTROLS An internal control system consists of policies and procedures used to protect assets, ensure reliable accounting, promote efficient operations, and promote adherence to company policies. It is important workplace fraud and consequently establish INTERNAL CONTROLS to effectively minimize risks of fraud. 1. For each of the following five separate cases: A. Identify the ONE PRINCIPLE OF INTERNAL CONTROL which has been violated. B. Recommend ACTION(s) the company could take to ENHANCE INTERNAL CONTROLS. Scenario 1: Latisha Tally is the company's computer specialist and oversees its computerized payroll system. Her boss recently asked her to put password protection on all office computers. Latisha has put a password in place that allows only the boss access to the file where pay rates are changed and personnel are added or deleted from the payroll. N Scenario 2: Marker Theater has a computerized order-taking system for its tickets. The system is active all week and backed up every Friday night. Scenario 3: Sutton Co. has two employees handling acquisitions of inventory. One employee places purchase orders and pays vendors. The second employee receives the merchandise. Scenario 4: The owner of Super Pharmacy uses a check protector to perforate checks, making it difficulu for anyone to alter the amount of the check. The check protector is on the owner's desk in an office tha contains company checks and is normally unlocked. CH 7 ACTIVITY - INTERNAL CONTROLS 2 An internal control system consists of all policies and procedures used to protect assets, ensure reliable accounting, promote efficient operations, and urge adherence to company policies. It is important that companies assess their risks of workplace fraud which includes assessing INTERNAL CONTROLS and devising ways to remedy the lack thereof. 1. For each of the following three cases: A. Identify ONE PRINCIPLE OF INTERNAL CONTROLS which has been violated. B. Recommend what ACTION(s) the company should take to remedy this situation. Scenario 1: In order to save money, Regal Co. has decided to drop its property insurance on assets and to stop bonding the cashiers who handle less than $10,000 in cash each day. A principle vioared: Principle of insurance and bonding B. Acron taken by company to remedy the situation: company should ensure that invoices are kept in seperate file instead of keeping them in an open drayver. It should be the responsibility of accounting officer to record the invoices in aseperate file and keep it an a safe place company should maintain register to track in whose custody the invoice is currently in it should contain Signature of the person in Scenario 2: Wang Co. records each sale on pre-numbered invoices. These invoices are left in an open whose drawer for any employee to access. No employee at Wang Co. examines and records whether all the wody invoices are accounted for after employees take them from the open drawer. invoices A principle violated: Principle of record keeping procedures are. B. Action foren by company to remedy Cirnon: The company should ensure that invoices are kept in seperate file instead of Keeping them in an open drawer. it should be the responsibility of the accounting Officer to record the invoices in a seperate fie ond rece il 1 g safe place. The company should maintain register to have thin whose custody the invoice is currently in it should contain signature of the person in whose Scenario 3: Gerald McNichols, the owner of McNichols Co., prides himself on hiring only the most competent employees. McNichols believes that since these employees are highly competent and that he trusts them completely and wants to keep employee morale high, there is no need for anyone to review the employee's performance. A principle violated: principle of responsibilities for internal control B. Action 19ken by company to remedy situation The company those mw assign responsibilities of each employee. Nisigning Specific responsibility to individuals ensures they understand what their part is, in maintaining internal control. If an internal Control responsibility is consistently overlooked, an effechve internal control system will make it Clear wno is not performing an assigned task. CH 7 ACTIVITY - IDENTIFYING INTERNAL CONTROLS Identify 2 out of the 7 PRINCIPLES OF INTERNAL CONTROLS being applied to the following scenarios. For #4, identify 1 of the 7 INTERNAL CONTROLS for each scenario. 1. Each sales clerk uses her own cash drawer AND the cash drawer can be opened only by swiping an employee identification card. establish responsibilities principle of insurance and bonding whiron 2. The company's cash registers keep a record of each transaction in an electronic file AND the company manager reviews these files daily. Technological Controls. To perfom regular and independant reviews. 3. The company's manager issues pre-numbered sales slips to salespersons which must be turned into the manager after making a sale AND the manager verifies that all sales slips are accounted for each month. Maintain adiquile records. to perform regular and inde pendant reviews 4. A company buys goods for resale from a manufacturer-each purchase must be approved by a manager, and when goods are received a receiving department employee checks incoming goods. The manager cannot receive goods, and the receiving department employee cannot make purchase orders. Divide responsibilities for related transactions. Assens record The company purchases a bond on each of its receiving department employees. insure bond key employees Neither the manager nor the receiving department employees are allowed to make accounting journal entries. seperate record keeping from custody of assets

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