Question

Pick one of the following and describe a control procedure. Basically, each one has more than one control that can be implemented. What internal control procedure(s) would provide protection against the following threats?

Theft of goods by the shipping dock workers, who claim that the inventory shortages reflect errors in the inventory records

Posting the sales amount to the wrong customer account because a customer account number was incorrectly keyed into the system

Making a credit sale to a customer who is already four months behind in making payments on his account

Authorizing a credit memo for a sales return when the goods were never actually returned

Writing off a customer’s accounts receivable balance as uncollectible to conceal the theft of subsequent cash payments from that customer

Billing customers for the quantity ordered when the quantity shipped was actually less due to back ordering of some items

Theft of checks by the mailroom clerk, who then endorsed the checks for deposit into the clerk's personal bank

Shipping goods to a customer but then failing to bill that customer

The company's Web site was unavailable for seven hours because of a power outage

A fire in the office next door damaged the company's servers and all-optical and magnetic media in the server room. The company immediately implemented its disaster recovery procedures and shifted to a backup center several miles away. The company had made full daily backups of all filed and stored a copy at the backup center. However, none of the copies were readable.

Answer 1

1. Physical Stock Count of Inventory at Loading and Unloading and at Periodic Intervals can keep a check on this situation. (theft of goods)
2. Periodic Reconciliations can lead to check on the above situation.(sales posting to wrong customers)
3. Preparation of Debtor's Ageing on regular basis can lead to better control on the situation. Simultaneously, involvement of an approval authority will lead to better check. (credit sale to a customer who is already four months behind in making payments)
4. Standardized Documentation for Credit Memo which is authorized by an approving authority. Thus, by keeping a double check or by separating duties of verifying sales returns and issuing credit memo same can be kept in control. (Authorizing a credit memo for a sales return when the goods were never actually returned)