Internal controls.(CMA adapted, June 1991) Brock Company is a manufacturer of children’s toys and games. The company has been experiencing declining profit margins and is looking for ways to increase operating income. Because of the competitive nature of the industry, Brock is unable to raise its selling prices and must either cut costs or increase productivity.
As the company purchases a variety of raw materials, the volume of paperwork in the Accounts Payable Department is very large, and there are several accounting clerks involved in processing and paying the invoices. The repetitive nature of this work leads to errors because of inattention to details such as part numbers and unit prices. These
errors have led to double payments, payments for goods not yet received, and delays in the receipt of raw materials because suppliers that should have been paid have not been paid. These situations often require a great deal of supervisory time to resolve.
The department manager has recommended that increased emphasis be placed on quality control. This would be achieved by increased monitoring of daily output, curtailing talking among staff members, and strict adherence to work hours. All errors would be discussed with the employee, and the staff would be informed that performance evaluations will be negative if errors are not reduced.
Comment on the costs and benefits of Brock’s proposed new internal control system in Accounts Payable. Suggest an alternative system that would achieve the same results.
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