Problem 8-1A
1. The internal control system being violated would be dividing responsibility for related transactions. Heather may be responsible for recording all cash payments but someone else should be applying these payments to the customer accounts. This will ensure the cash payments have all been recorded and applied to the proper account. All of the cash transactions should also have a sales slip or receipts to show what customer has paid. The customer would receive a copy and the company would have a record to follow when applying the payments to customer accounts.
2. Establishing responsibilities is the internal control that has been violated in this incident. There are too many people with access to one cash drawer. This means if there is an error at the end of the day there would not be any way to determine where the error was made. Both Jeff and Joe should have their own cash drawer and keep records for all outgoing and incoming petty cash. This means if Joe does not have the proper amount of cash in his drawer then he would be at fault.
3. The violation in this would be separating recordkeeping from custody of assets. Nadine may be the one who is responsible for posting charges to a patients account but she should not be posting payments and keeping the records of these transactions. If she posts all the charges another person should post the payments with use of adequate recordkeeping for both parties. This will help reduce false charges or theft of payments that have not been posted to the customer accounts. All of the records should be kept by another person rather than the person who posts the charge or accepts the payments.
4. Performing regular and independent reviews is the violation in this incident. The owner may feel he has reliable employee’s and does not see a need to check their work or have and external party look over the records leaves a lot of room for error or theft in his company. The employees should only have access to their work duties not the entire office. There should be someone each employee has to check their records. This person reviewing should have no interest in the other person’s duties to ensure accuracy of their reports and reviews. There should also be an external method of reviewing all employee reports that can find any discrepancies in their work.
5. Desi has violated the internal control method of insuring assets and bonding company employee’s. This person may have felt they were saving the company money by reducing their insurance premium but if there is an insurance claim the company would be responsible for more of the deductible. She also eliminated the process of bonding employee’s which leaves the company open to theft by employees. The company may spend a little bit more for bonding their employee’s but it is more important to spend that money in the beginning and guarantee the insurance of their money and preventing theft.
Problem 8-3A

Part 1

Feb 2 Petty Cash…………………………… 300 Cash…………………………………. 300

Part 2

Inoke Gallery Petty Cash Payments Report

Delivery expense
Feb 23 Delivery of customer merchandise 18.00

Mileage expense
Feb 14 Mileage reimbursement to Alli Buck 58.00

Postage expense
Feb 12 Express delivery of contract 9.95
Feb 27 Postage 64.00 73.95

Merchandise inventory (transportation-in)
Feb 9 COD charges on purchases 22.50
Feb 25 COD charges on purchases 15.10 37.60

Office supplies expense
Feb 5 Purchased bond paper 10.13
Total 197.68

Part 3
Feb 28 Delivery Expense 18.00 Mileage Expense 58.00 Postage Expense 73.95 Merchandise Inventory 37.60 Office Supplies Expense 10.13 Cash Over/Short 81.09 Petty Cash 100.00 Cash 378.77