Colorado Springs Company (CSC) is a wholesaler with fiscal year ended December 31 of previous year. Since it is publicly-traded, it undergoes external audit. The most recent audit was completed in February of this year. As part of the audit of the financial statements, the auditors tested the effectiveness of management’s assessment of internal control over financial reporting. The auditor found out that existing internal controls were inadequate. Specifically, CSC’s accounting system for sales, cash receipts, accounts receivables, and accounts payable had material weakness. The audit revealed that there were:
1) Poor accounting system of recording keeping
2) Late deposits of cash receipts
3) Excessive aged and high accounts receivable balances
4) Disregard for early payments for discounts on invoices
5) Late payments of accounts payable (sometimes due to lack of cash)
6) Lax appropriate segregation of duties
7) Relaxed rules on accounting principles’ application
8) Unqualified supervisor and management
9) Inadequate control on supervisor and management overrides
10) Lax oversight by external board of directors
A) For each finding above, indicate the internal control principle that CSC violated.
B) For each finding above, provide an appropriate recommendation for CSC to correct the weakness.