91Ó°ÊÓ

Quality Sound Co. discovered a fraud whereby one of its front office administrative employees used company funds to purchase goods, such as computers, digital cameras, compact disk players, and other 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 procedures used for over-the-counter receipts are as follows. At the close of each day's 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 memorandum cash form, noting any discrepancies. An employee from the cashier's office counts the cash, compares the total with the memorandum, and takes the cash to the cashier's office. a. In_icate the weak link in internal control. b. How can the weakness be corrected?

Identify each of the following reconciling items as: (a) an addition to the cash balance according to the bank statement, (b) a deduction from the cash balance according to the bank statement, (c) an addition to the cash balance according to the company’s records, or (d) a deduction from the cash balance according to the company’s records. (None of the transactions reported by bank debit and credit memoranda have been recorded by the company.) 1\. Bank service charges, \(48. 2\. Outstanding checks, \)8,125.50. 3\. Deposit in transit, \(12,200. 4\. Note collected by bank, \)8,750. 5\. Check drawn by company for \(150 but incorrectly recorded as \)510. 6\. Check for \(200 incorrectly charged by bank as \)2,000. 7\. Check of a customer returned by bank to company because of insufficient funds, $1,200.