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    Choate and Choate (Identifying Controls for a System)

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    Choate and Choate (Identifying Controls for a System)
    Choate and Choate is an advertising agency that employs 625 salespersons, who
    travel and entertain extensively. Each month, salespersons are paid both salary and
    commissions. The nature of their jobs is such that expenses of several hundred dollars
    a day might be incurred. In the past, these expenses were included in each salesperson's
    monthly paycheck. Salespersons were required to submit their expense reports,
    with supporting receipts, by the 20th of each month. These reports would be
    reviewed and then sent to data entry in a batch. Suitable controls were incorporated
    on each batch during input, processing, and output. This system worked well from a
    company viewpoint, and the internal auditor was convinced that, while minor
    padding of expense accounts might occur, no major losses had been encountered.
    As interest rates began to climb, the salespersons became unhappy. They
    pointed out that they were often forced to carry several thousand dollars for an entire
    month. If they were out of town around the 20th, they might not be reimbursed
    for their expenses for two months. They requested that Choate and Choate provide
    a service whereby a salesperson or his or her representative could submit receipts
    and expense reports to the accounting department and receive a check almost immediately.
    The data processing manager said that this procedure could be done. A computer
    terminal would be set up in the accounting office, along with a small printer.
    The salesperson's name would be entered along with the required expense amount
    broken down into the standard categories. A computer program would process these
    data to the proper accounts and, if everything checked out suitably, print the check
    on presigned check blank stock in the printer.

    Requirement
    1. Appraise the strengths and weaknesses of the current system.
    2. Design a system of internal controls to minimize the risk of fraud of loss.

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    Solution Preview

    Choate and Choate (Identifying Controls for a System)
    Choate and Choate is an advertising agency that employs 625 salespersons, who
    travel and entertain extensively. Each month, salespersons are paid both salary and
    commissions. The nature of their jobs is such that expenses of several hundred dollars
    a day might be incurred. In the past, these expenses were included in each salesperson's
    monthly paycheck. Salespersons were required to submit their expense reports,
    with supporting receipts, by the 20th of each month. These reports would be
    reviewed and then sent to data entry in a batch. Suitable controls were incorporated
    on each batch during input, processing, and output. This system worked well from a
    company viewpoint, and the internal auditor was convinced that, while minor
    padding of expense accounts might occur, no major losses had been encountered.
    As interest rates ...

    Solution Summary

    This solution is comprised of a detailed explanation to appraise the strengths and weaknesses of the current system and design a system of internal controls to minimize the risk of fraud of loss.

    $2.19

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