Question

Every year, Jessica Gomez, CEO of Logan Construction Company, takes a two week vacation to Barbados and signs multiple blank checks to pay for any major bills that come due while she is away. Jessica's vacation occurs towards the end of Logan's fiscal year. Carl Johnson, controller for the company, uses this practice for his gain. He identifies a very large invoice from a vendor, makes out a check to himself for that amount, and records it as a payment to the vendor for acquisition of supplies. He holds the check for several weeks to ensure the auditors will not review the canceled check. Not long after the first of the year, Johnson resubmits the invoice to Gomez for approval and records the check in the cash disbursements journal. Johnson then marks the invoice as paid and files away with other paid invoices. Johnson has been performing this activity many years and believes he has no risk of getting caught.

Required:

There are so many opportunities for improvement in the internal controls in this scenario. With an unlimited amount of funds, many people, and an unlimited time frame, a company could virtually eliminate all control risk. Practically speaking, though, that is not feasible for 95%+ of all companies. Small companies like Logan Construction especially struggle with control risk in the areas of acquisition and financing because they operate with minimal staffing, restrictive budgets, and a remote workforce.

If you were consulting with Logan Construction on internal control improvement opportunities, provide two short term suggestions for controls improvement, and one long term suggestion that the company might need to plan for financially or technologically.

Respond (at least two additional posts) to the instructor's posts and that of other students in any of the following ways:

Build on something your classmate said.

Explain why and how you see things differently.

Ask a probing or clarifying question.

Share an insight from having read your classmate's posting.

Offer and support an opinion.

Expand on your classmate's posting.

Answer 1

Answer :

Momentary recommendations:

a) Here CEO Jessica Gomez, can get uncommon checks from her Bankers of a most extreme point of confinement, state $ 1,000/ - , as these checks can be issues just for little installments in her nonappearance, she can avoid significant fakes. Concerning any real installments, the installments terms can be consulted with merchants and credit term can be mentioned.

b) As CEO Jessica Gomez, goes on excursions for shorter lengths, she can advance a development to her Finance Controller for meeting any crisis installments, and she can take a report of such use from her FC when she is back.

Furthermore CEO Jessica Gomez can survey the Vendor payables maturing report before taking some time off, and she can get ready post dated checks for any payables which will end up due amid her nonattendance, rather than issuing limitless tickets to ride.

Long haul Suggestion :

Introduce a payables programming (Like SAP ERP) which ought to be connected to your Accounting programming just as bank entrances. Bank subtleties of every single seller ought to be refreshed in the programming projects. Inititate installments just throught such programming projects and quit issuing checks or manual installment handling. Allot Multiple signatories for approving installments. Approved signatories ought to be occasionally checked on and refreshed.