Question

Fork Company is a rapidly growing start-up business. The bookkeeper, who was hired ten
months ago, left Hong Kong after the company's manager discovered that a large sum of money
had disappeared over the past two months. An audit discovered that the bookkeeper had written
and signed several checks made payable to his girlfriend and then recorded the checks as
salaries expense. The girlfriend, who cashed the checks had never worked for the company, left
Hong Kong with the bookkeeper. As a result, the company incurred an uninsured loss of
$110,000.

Required:

Discuss which principles of internal control appear to have been ignored for the Fork Company.

Answer 1

Segregation of duties is the most fundamental principle of internal control that appear to have been ignored for the Fork Company. Segregation of duties involves splitting of responsibilities for various works in an organisation. Responsibilities of one or more employees must be over viewed by co-employee, this brings less chance to single employee to commit fraud. The purpose is to prevent and detect misappropriation of assets like check tampering schemes, fraudulent payroll schemes, Cash misappropriation and skimming etc.