Question

The Ashland Company recently hired you to review its control procedures for the purchase, receipt, storage, and issuance of raw materials. You prepared the following comments, which describe Ashland’sprocedures.

• Raw materials, which consist mainly of high-cost electronic components, are kept in a locked storeroom. Storeroom personnel include a supervisor and four clerks. All are well trained, competent, and adequately bonded. Raw materials are removed from the storeroom only upon written or oral authorization from one of the production foremen.

• There are no perpetual inventory records; hence, the storeroom clerks do not keep records of goods received or issued. To compensate for the lack of perpetual records, a physical inventory count is takenmonthly by the storeroom clerks, who are well supervised. Appropriate procedures are followed in making the inventory count.

• After the physical count, the storeroom supervisor matches quantities counted against a predetermined reorder level. If the count for a given part is below the reorder level, the supervisor enters the part numberon a materials requisition list and sends this list to the accounts payable clerk. The accounts payable clerk prepares a purchase order for a predetermined reorder quantity for each part and mails the purchase orderto the vendor from whom the part was last purchased.

• When ordered materials arrive at Ashland, they are received by the storeroom clerks. The clerks count the merchandise and see that the counts agree with the shipper’s bill of lading. All vendors’ bills of lading are initialled, dated, and filed in the storeroom to serve as receiving reports.

In the table below:

1.Identify five (5) risks in the existing internal control system over cash admission fees.

2. Recommend a control for each of the risks you identified.
3. Classify each of the control activities as preventive, detective, or corrective.

Answer 1