Question

Mike is the controller at Huskie Supply Company. Huskie Supply has an investment account with DT National Brokerage. Mike is authorized to call the broker and initiate trades on behalf of the company. Mike's son goes to MEU (Most Expensive University) and Mike has a CD with the money for this year's tuition. MEU changed the tuition due date such that the tuition came due 30 days before Mike's CD matured. Mike would lose a large amount of interest if he cashed in the CD early, and a loan from the bank was not possible (Mike is already overextended), and interest on a credit card advance would be 28%.

Mike authorized DT National Brokerage to sell one of the company's investments and send the check to his attention at the company. Mike paid the tuition and 30 days later, when the CD came due Mike repurchased the investment with the broker. In fact, the stock had dropped $3 and mike made a profit of $900.
A) Define the internal control weakness that allowed the situation to exist - if any;

B) One (and only one) specific internal controls that should be in place to prevent or detect the problem; and.

C) One (and only one) test of control audit procedure.

D) One (and only one) substantive audit procedure that may detect the situation described.
Consider each item separately - no credit will be given for generic controls (e.g. policies and procedures; separation of duties (without specifics); discuss with management.)