ACT2112

SEMESTER II 2012/2013
TUTORIAL 1

1.

The ticket seller at a movie theater doubles as a ticket taker for a few minutes each day
while the ticket taker is on a break. Which control procedure of a businesss system of
internal control is violated in this situation?
The control procedure requiring that the responsibility for a sequence of related
operations be divided among different persons is violated in this situation. This
weakness in the internal control may permit irregularities. For example the ticket seller
while acting as ticket taker, could admit friends without a ticket.

2.

Assume that Julie, accounts payable clerk for ABC Bhd., stole RM110,000 by paying
fictitious invoices for goods that were never received. The clerks set up accounts in the
names of the fictitious companies and cash the checks at a local bank. Describe a control
procedure that would have prevented or detected the fraud.
Controls that could have prevented or detected the fraud include 1). Requiring
supporting documentation such as receiving reports and purchase orders of all
payments; 2). Requiring approval by an independent party and 3). Allowing payments
to only vendors who have been previously approved by upper management.

3.

Electro Co. discovered a fraud whereby one of its front office administrative employees
used company funds to purchase goods, such as computers, digital cameras, compact disc
players, and electronic items for her own use. The fraud was discovered when employees
noticed an increase in delivery frequency from vendors and the use of unusual vendors. After
some investigation, it was discovered that the employee would alter the description or
change the quantity on an invoice in order to explain the cost on the bill. What general
internal control weaknesses contributed to this fraud?
The company should not have relied on the unusual nature of the vendors and delivery
frequency to uncover this fraud. The purchase and payment cycle is one of the most
critical business cycles to control, because the potential for abuse is so great. Purchases
should be initiated by a requisition document. This document should be countersigned
by a superior so that two people agree as to what is being purchased. The requisition
should initiate a purchase order to a vendor for goods or services. The vendor responds
to the purchase order by delivering the goods. The goods should be formally received
using a receiving document. An accounts payable clerk matches the requisition,
purchase order, and invoice before any payment is made. Such triple matching
prevents unauthorized requests and payments. In this case, the requests were
unauthorized, suggesting that the employee has sole authority to make a request.
Second, this employee had access to the invoices. This access allowed the employee to
change critical characteristics of the invoice to hide the true nature of the goods being
received. The invoice should have been delivered directly to the accounts payable clerk

to avoid corrupting the document. There apparently was no receiving document

(common for smaller companies); thus, only the invoice provided proof of what was
received and needed to be paid. If there had been a receiving report, the invoice could
not have been doctored and gone undetected, because it would not have matched the
receiving report.
4.

The procedures used for over-the-counter receipts are as follows. At the close of each
days business, the sales clerks count the cash in their respective cash drawers, after which
they determine the amount recorded by the cash register and prepare the memo cash form,
noting any discrepancies. An employee from the cashiers office counts the cash, compare
the total with the memo, and takes the cash to the cashiers office.
a. Indicate the weak link internal control.
The sales clerks should not have access to the cash register tapes.
b. How can the weakness be corrected?
The cash register tapes should be locked in the cash register and the key retained
by the cashier. An employee of the cashiers office should remove the cash
register tape, record the total on the memo form, and note discrepancies.