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Identifying Control Procedures

Identify one or more control procedures (either general or application controls, or both) that would guard against each of the following errors or problems.

a. Leslie Thomas, a secretary at the university, indicated that she had worked 40 hours on her regular time card. The university paid her for 400 hours worked that week.

b. The aging analysis indicated that the Grab and Run Electronics Company account was so far in arrears that the credit manager decided to cut off any further credit sales to the company until it cleared up its account. Yet, the following week, the manager noted that three new sales had been made to that company - all on credit.

c. The Small Company employed Mr. Fineus Eyeshade to perform all its accounts receivable data processing. Mr. Eyeshade's 25 years with the company and his unassuming appearance helped him conceal the fact that he was embezzling cash collections from accounts receivable to cover his gambling losses at the race track.

d. The Blue Mountain Utility Company was having difficulty with its customer payments. The payment amounts were entered directly into a terminal, and the transaction file thus created was used to update the customer master file. Among the problems encountered with this system were the application of customer payments to the wrong accounts and the creation of multiple customer master file records for the same account.

e. The Landsford brothers had lived in Center County all their lives. Ben worked for the local mill in the accounts payable department, and Tom owned the local hardware store. The sheriff couldn't believe that the brothers had created several dummy companies that sold fictitious merchandise to the mill. Ben had the mill pay for this merchandise in its usual fashion, and he wrote off the missing goods as ''damaged inventory.''

Identify one or more control procedures (either general or application controls, or both) that would guard against each of the following errors or problems.

a. A bank deposit transaction was accidentally coded with a withdrawal code.

b. The key-entry operator keyed in the purchase order number as a nine-digit number instead of an eight-digit number.
c. The date of a customer payment was keyed 2001 instead of 2010.

d. A company employee was issued a check in the amount of $135.65 because he had not worked a certain week, but most of his payroll deductions were automatic each week.

e. A patient filled out her medical insurance number as 123465 instead of 123456.

f. An applicant for the company stock option plan filled out her employee number as 84-7634-21.The first two digits are a department code. There is no department 84.

g. A high school student was able to log onto the telephone company's computer as soon as he learned what telephone number to call.

h. The accounts receivable department sent 87 checks to the computer center for processing. No one realized that one check was dropped along the way and that the computer therefore processed only 86 checks.

Solution Preview

9-15. Identify one or more control procedures (either general or application controls, or both) that
would guard against each of the following errors or problems.
a. Leslie Thomas, a secretary at the university, indicated that she had worked 40 hours on her
regular time card. The university paid her for 400 hours worked that week.
There would be application controls that would verify the number of hours entered into the accounting system (not to mention that working 24 hours a day for 7 days is only 168 hours). One way is to limit the number of hours that can be entered for one week’s work total to not exceed 100.
b. The aging analysis indicated that the Grab and Run Electronics Company account was so far
in arrears that the credit manager decided to cut off any further credit sales to the company
until it cleared up its account. Yet, the following week, the manager noted that three new
sales had been made to that company—all on credit.
This is both. The general control is the communication between the credit manager and the sales department. Now we know that didn’t work so the application control would be a hold placed on the company’s credit account. This would generate a red flag and require manager override to process.
c. The Small Company employed Mr. Fineus Eyeshade to perform all its accounts receivable
data processing. Mr. Eyeshade’s 25 years with the company and his unassuming appearance
helped him conceal the fact that he was embezzling cash collections from accounts
receivable to cover his gambling losses at the race track.
BOTH! The quarterly, or at least annual, audit of the financial ...

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