1. Identify at least two control procedures for each of the situations below.
• Controls can include physical controls, general controls, application controls, data input controls, output controls, processing controls
i. Any control you've studied to date
ii. Be creative-if you owned the business, what would you do?
• Be very specific; citing segregation of duties is not sufficient. You must identify which specific duties should be segregated
• Remember preventive controls are better than detective controls
• Identify the best control first
• Identify as many relevant controls as possible
• I have identified the number of controls I identified in parentheses at the end of each scenario
• I have completed letter a as an example
a. Shipping department employees steal inventory, claiming that the inventory shortages reflect errors in the perpetual inventory records.
1) Segregation of duties between Warehouse, Shipping, Inventory Control, and Sales
2) Bar codes or RFID tags to eliminate errors in data entry of item numbers
3) Move document-Warehouse employees and Shipping employees should sign picking ticket to document transfer of inventory from the Warehouse to the Shipping department
4) Logical access controls-neither Warehouse nor Shipping employees should have access to inventory subsidiary ledgers or general ledger control accounts
5) Video surveillance of shipping dock
6) Physical access controls-only authorized employees should have physical access to the Warehouse and Shipping areas
7) Prompt investigation of customer complaints about shorted shipments
b. An employee posts a sale to the wrong customer account because he incorrectly keys the customer account number into the system.
c. An employee makes a credit sale to a customer who is already four months behind in making payments on his account.
d. An employee authorizes a credit memo for a sales return, when the goods were never actually returned.
e. An employee writes off a customer's accounts receivable balance as uncollectible to conceal the theft of subsequent cash payments from that customer.
f. Customers are billed for the quantity ordered, but the quantity shipped is actually less, because some items have been backordered.
g. The mailroom clerk steals checks and then endorses them for deposit into the clerk's personal bank account.
h. A retail store cashier steals money from the cash register.
i. A restaurant server steals cash from customers who paid cash, and alters sales tickets to hide the theft.
j. Inventory is shipped to a customer, but the customer is not billed.
k. A business loses sales because of stockouts of several products for which the computer records indicated there was adequate quantity on hand.
l. A business experiences unauthorized disclosure of the buying habits of several well-known customers.
m. A business loses all information about amounts owed by customers in New York City because the master database for that office was destroyed in a fire.
n. The company's Web processing site is unavailable for seven hours because of a power outage.
o. A sales clerk sells a $7,000 wide-screen TV to a friend and alters the price to $700.
p. A fire in the office next door damages the company's servers and all optical and magnetic media in the server room. The company immediately implements its disaster recovery procedures and shifts to a hot site several miles away.
The company has made full daily backups of all files and has stored a copy at the hot site. However, none of the backup copies are readable.