ACCOUNTING INFORMATION SYSTEMS
PBL REPORT TASK 4
“INTERNAL CONTROL ANALYSIS 1”

Required:
Explain how the principle of separation of duties is violated in each the following situations. Also suggest one or more procedure to reduce risk, and exposure highlighted in each of example.

Solving Problems: a. A payroll clerk recorded 40-hour workweek for an employee who had quit the previous week. He then prepared a paycheck for this employee, forged her signature, and cashed the check.
Violation:
The payroll clerk only have an authority to prepare the paycheck, not to signature or cashed the checks. The signature of payroll is the duty of HR manager, while cashed the paychecks is the duties of the cashier, so, the payroll clerk has violated his/her job description and his/her authorities.
Solution:
In this case, we must make know job description and authorities to the clerk. Because the duty of clerk on this case is only record the activities happen. If all the job done by the clerk, the clerk can make a manipulation or some fraud for example, that the clerk issue a check but the check is not for the employee but for the clerk. So we must have someone to control the clerk and cut it out when some mistake happen. And to solve this case we can also order someone to be the HR manager to make this case more secure from fraud. And for cashed the check we can give that job to cashier. After separate this duty and authorities we can minimize the risk.

b. While opening the mail, cashier set aside, and subsequently cashed, two checks payable to the company on account.
Violation:
In this case, I think the problem, is why the cashier opened the mail? I think this is clerk job. The cashier job is only spend the money. So we must make a new job description for the cashier and the clerk.
Solution:
So we can make solve this case by, first we must separate the cashier and clerk job. Make new job description for them. The cashier job is only spend the money if there is check payable. But for checking the mail is still the job of clerk. Then before the check is transform to cash, still must have permission from finance manager so there will be more responsibility in activities. c. A cashier prepared a fictious invoice from a company using his brother-in law’s name. He sent an electronic payment for the invoice to his brother in law.

Violation:
Cashier is not have a right to make an invoice, the invoice must be prepared by A/P staff, and the cashier can not make a payment before they got the assignment from the finance manager, there is no clear job description in this problem.
Solution:
So in this case, we must make a clear job description. But before that, we must know there is a big fraud that cashier do. She make fictious invoice. To make clear this, we must give punishment to the cashier so they won’t be do that anymore. After we clear that problem now we can make a new design of issue a invoice. Invoice only can issue if already have a permission from the finance manager, or other manager. Because invoice can be responsible if there will be mistake in someday. d. An employee of finishing department walked off with several parts from the store room and recorded the items as having been issued to the assembly department.
Violation:
The problem is errorness of the employee. Because he walked off with several parts in the store room. In this case we must make a new design of storing inventory.
Solution:
So with this case we must give the new design for storing inventory. Employee must be complete move the inventory from assembly department to finishing department. There must be no miss inventory that still in the store room. It must all move on. After that the employee is must be given a practice so there will be no more mistake like this again in the future.

e. A cashier cashed a check from a customer in payment of an account receivable, pocketed the cash, and conceal the theft by properly posting the receipt to the customer account in the accounts receivable ledger.
Violation:
This is a fraud problem. The cashier has violated the ethics of work with do this. This problem probably can happen because of the weak internal control, there’s no tight controlling in cash receiving, so the cashier can do this.
Solution:
This is a big trouble for company. So for the first things we do is we must give a punishment to the cashier and give a warning for other problem in the future. After the problem is clear we must have a new regulation for cashier so there will be no more action like this anymore. And manager must do more action to control every activities of the cashier.

Task 5 (Discussion Task)
“Internal Control Analysis 2”

Main Problem
‘The errors and fraud conditions in management at Covington, Inc’.

Analyze Problem * What causes of the errors and fraud conditions? * How to determine or detect the errors and fraud of the condition? * How to prevent or control to be implemented that would correct the condition?

Learning objective * Identify the exposures to risk that a firm’s faces with respect to assets and data, including those involving fraud * Describe security measures that pertain to physical non-computer resources * Discuss security measures for data and information * Identify controls, security, and audit measures that pertain particularly to computer networks

Solution 1. Daily bank deposit do not always correspond with the cash receipt a. Possible cause of the condition * Errors may appear in input data called human errors, such as names or number. Maybe, when the clerical and operational employees-who process transactional data and have access to assets, enter the daily bank deposit, the names or number is not suitable. These errors may often occur on an occasional and random basis, like a clerk accidentally cross out the wrong key on a terminal keyboard. So, the erroneous data will damage the accuracy and reliability of a files and outputs. It means that, the daily bank deposit cannot appropriate with the cash receipt. * Deliberate errors or fraud. These irregularities may appear in input data (daily bank deposit), during processing, or in generated outputs (cash receipt). In short, a clerk may increase or decrease the amount on the cash receipt.

b. The action to be taken and/or controls to be implemented * One of things that the manager should pay more attention and more concerning to the security design system that are able to protect any kind of datam especially bank deposit and cash receipt. Manager can put some special access that only the employee who has authorization to the data information programs.

2. Bad check from customers usually are reviewed and approved by the same employee a. Possible cause of the condition * This is usually caused deliberate errors constitute fraud. Maybe there is no strict and clear regulation that can control the employee with their actual job desk. b. The action to be taken and/or controls to be implemented * In this fraud condition, internal audit staff must check first about the check received. Then, the manager should make a security to protect from the unauthorized data and information, as bad check from the customers. So it can be controlled and avoid from the fraud of the employee.

3. There are occupational discrepancies between physical inventory account and the perpetual inventory records. a. Possible cause of the condition * Unintentional losses of assets, assets (inventory) may be lost or misplaced by accident. It means that if newly received inventory maybe put the wrong warehouse bins, the pickers do not find it when filling orders and the data as well as the physical assets may be lost. So, it could be a difference between the physical inventory account and the perpetual inventory records. * Theft of assets, the inventory maybe stolen by outsiders, such as professional thieves who break into a storeroom or maybe stolen by the employee of the company. b. The action to be taken and/or controls to be implemented * For this problem, one part who should take a correction is the internal audit staff, control, check, and count it surely to the physical inventory in the storeroom. And the manager can increase the control such as security guards and motion detection alarms and so on to reduce the risk of exposure.

4. The auditor notice alteration to physical count and perpetual records.
The action to be taken and/or controls to be implemented * An amount control total, the total of the values in amount or quantity field * An hash total, the total of values in an identification field * A record count, the total number of source documents, hence transactions being processed in a batch

5. There is high percentage of customer refund and credits
The action to be taken and/or controls to be implemented this case show that the company doesn’t have a clear regulation that concern about refund, and it makes customer can refund whenever they want even it’s customer fault if the stuff that they buy is broken by themselves. As for credits, it looks like the company doesn’t give a clear terms of payment to the customer, so that the customer doesn’t pay their credits and the company doesn’t even try to tell them about it. For solving this problem , the company must concern in the making of a clear regulation and procedure, so it will reduce customer refunds and credits. If it happens for a long time, it’ll be hard for the company to get more profit

6. Many original documents are missing or lost. However, there are substitute copies of all missing originals. a. Possible cause of the condition * Breaches of security, unauthorized persons may gain access to firm’s document, like “hacker” may break into a firm’s computerized files via a distant terminal and take the document. * Act of violence and natural disasters, certain violent acts cause damage to the firm’s document and the natural disaster, such as hurricanes and floods may destroy the document, so it will be lost. b. The action to be taken and/or controls to be implemented * The manager should protect from unauthorized access to data and information by giving password to allow access to authorized users and to restrict each user to the data or information and programs. On the other hand, it must be a protection from natural disasters or environmentally controlled, such as constructing computer centre on high terrain that will minimize the threat of floods, computer facilities should be constructed of fireproof materials and should contain a fireproof vault to serve as the document. Then, the manager also should recovery and reconstruction of lost data.

7. An unexplained decrease in the gross profit percentage has occurred.
The action to be taken and/or controls to be implemented just like the situation number five, I think the amount of gross profit percentage of customer refund and credit. So, to fix this situation, I think we should fix the situation number five, so we can get the actual gross profit.

8. Many documents are not countersigned.
The action to be taken and/or controls to be implemented if the document are not countersigned, its means there’s no approval for the documents, so the company can’t make any operation regarding the document that are not countersigned. And from what I think there’s should be an error an authorization may appear as a signature and so on. And then the authorization are generally reflected through transaction documents so if there’s no any signature, it’s impossible to go to the next step because there’s no approval.
Hilmy Arya (023100081)

Task 5 (Discussion Task)
“Internal Control Analysis 2”

Main Problem : The errors and fraud conditions in management at Covington, Inc.
Analyze Problem : * What causes of the errors and fraud conditions? * How to determine or detect the errors and fraud of the condition? * How to prevent or control to be implemented that would correct the condition?

Learning objective : * Identify the exposures to risk that a firm’s faces with respect to assets and data, including those involving fraud * Describe security measures that pertain to physical non-computer resources * Discuss security measures for data and information * Identify controls, security, and audit measures that pertain particularly to computer networks

Solution
Daily bank deposit do not always correspond with the cash receipt b. Possible cause of the condition * Unintentional errors, errors may appear in input data called human errors, such as names or number. Maybe, when the clerical and operational employees-who process transactional data and have access to assets, enter the daily bank deposit, the names or number is not suitable. These errors may often occur on an occasional and random basis, like a clerk accidentally cross out the wrong key on a terminal keyboard. So, the erroneous data will damage the accuracy and reliability of a files and outputs. It means that, the daily bank deposit cannot appropriate with the cash receipt. * Deliberate errors or fraud. These irregularities may appear in input data (daily bank deposit), during processing, or in generated outputs (cash receipt). In short, a clerk may increase or decrease the amount on the cash receipt.

c. The action to be taken and/or controls to be implemented * The manager should design a security for data and information to combat fraud and irregularities provide protection from unauthorized access to data and information by giving password to allow access to authorized users and to restrict each user to the data or information and programs; protection from undetected access of data and information which is not correspond names, number and etc. So, it can reduce the risk from exposures.

Bad check from customers usually are reviewed and approved by the same employee c. Possible cause of the condition * Deliberate errors constitute fraud. In this condition, maybe there is a fraud between the employee and customers because the same employee wants to review and approve the check. So the employee may increase the amount on a check received from the customer or underfoot a column of cash receipt. d. The action to be taken and/or controls to be implemented * In this fraud condition, internal audit staff must check first about the check received. Then, the manager should make a security to protect from the unauthorized data and information, as bad check from the customers. So it can be controlled and avoid from the fraud of the employee.

There are occupational discrepancies between physical inventory account and the perpetual inventory records. c. Possible cause of the condition * Unintentional losses of assets, assets (inventory) may be lost or misplaced by accident. It means that if newly received inventory maybe put the wrong warehouse bins, the pickers do not find it when filling orders and the data as well as the physical assets may be lost. So, it could be a difference between the physical inventory account and the perpetual inventory records. * Theft of assets, the inventory maybe stolen by outsiders, such as professional thieves who break into a storeroom or maybe stolen by the employee of the company. d. The action to be taken and/or controls to be implemented * In this case, the internal audit staff should control, check, and count it first according to the physical inventory in the storeroom. After that, to keep the inventory save, the manager have to protect from unauthorized access known as access control includes security guards, fenced in area, burglar and fire exit alarms, motion detection alarms, locked doors, closed-circuit television monitors, safes, insurance coverage. Besides that, a complementary measure is close supervision of employees who handle the inventory.

The auditor notice alteration to physical count and perpetual records.
The action to be taken and/or controls to be implemented a. An amount control total, the total of the values in amount or quantity field b. An hash total, the total of values in an identification field c. A record count, the total number of source documents, hence transactions being processed in a batch

There is high percentage of customer refund and credits
The action to be taken and/or controls to be implemented this case show that the company doesn’t have a clear regulation that concern about refund, and it makes customer can refund whenever they want even it’s customer fault if the stuff that they buy is broken by themselves. As for credits, it looks like the company doesn’t give a clear terms of payment to the customer, so that the customer doesn’t pay their credits and the company doesn’t even try to tell them about it. For solving this problem , the company must concern in the making of a clear regulation and procedure, so it will reduce customer refunds and credits. If it happens for a long time, it’ll be hard for the company to get more profit

Many original documents are missing or lost. However, there are substitute copies of all missing originals. c. Possible cause of the condition * Breaches of security, unauthorized persons may gain access to firm’s document, like “hacker” may break into a firm’s computerized files via a distant terminal and take the document. * Act of violence and natural disasters, certain violent acts cause damage to the firm’s document and the natural disaster, such as hurricanes and floods may destroy the document, so it will be lost. d. The action to be taken and/or controls to be implemented * The manager should protect from unauthorized access to data and information by giving password to allow access to authorized users and to restrict each user to the data or information and programs. On the other hand, it must be a protection from natural disasters or environmentally controlled, such as constructing computer centre on high terrain that will minimize the threat of floods, computer facilities should be constructed of fireproof materials and should contain a fireproof vault to serve as the document. Then, the manager also should recovery and reconstruction of lost data.

An unexplained decrease in the gross profit percentage has occurred.
The action to be taken and/or controls to be implemented just like the situation number five, I think the amount of gross profit percentage of customer refund and credit. So, to fix this situation, I think we should fix the situation number five, so we can get the actual gross profit.

Many documents are not countersigned.
The action to be taken and/or controls to be implemented if the document are not countersigned, its means there’s no approval for the documents, so the company can’t make any operation regarding the document that are not countersigned. And from what I think there’s should be an error an authorization may appear as a signature and so on. And then the authorization are generally reflected through transaction documents so if there’s no any signature, it’s impossible to go to the next step because there’s no approval.
M.Azhar.y
023100073
“Internal Control Analysis 2”
Task 5 : discussion task
Main Problem : The errors and fraud conditions in management at Covington, Inc.
Analyze Problem :
What causes of the errors and fraud conditions?
How to determine or detect the errors and fraud of the condition?
How to prevent or control to be implemented that would correct the condition?
Learning objective :
Identify the exposures to risk that a firm’s faces with respect to assets and data, including those involving fraud
Describe security measures that pertain to physical non-computer resources
Discuss security measures for data and information
Identify controls, security, and audit measures that pertain particularly to computer networks

Solution
Daily bank deposit do not always correspond with the cash receipt
Possible cause of the condition
Unintentional errors, errors may appear in input data called human errors, such as names or number. Maybe, when the clerical and operational employees-who process transactional data and have access to assets, enter the daily bank deposit, the names or number is not suitable. These errors may often occur on an occasional and random basis, like a clerk accidentally cross out the wrong key on a terminal keyboard. So, the erroneous data will damage the accuracy and reliability of a files and outputs. It means that, the daily bank deposit cannot appropriate with the cash receipt.
Deliberate errors or fraud. These irregularities may appear in input data (daily bank deposit), during processing, or in generated outputs (cash receipt). In short, a clerk may increase or decrease the amount on the cash receipt.

The action to be taken and/or controls to be implemented
The manager should design a security for data and information to combat fraud and irregularities provide protection from unauthorized access to data and information by giving password to allow access to authorized users and to restrict each user to the data or information and programs; protection from undetected access of data and information which is not correspond names, number and etc. So, it can reduce the risk from exposures.
Bad check from customers usually are reviewed and approved by the same employee
Possible cause of the condition
Deliberate errors constitute fraud. In this condition, maybe there is a fraud between the employee and customers because the same employee wants to review and approve the check. So the employee may increase the amount on a check received from the customer or underfoot a column of cash receipt.
The action to be taken and/or controls to be implemented
In this fraud condition, internal audit staff must check first about the check received. Then, the manager should make a security to protect from the unauthorized data and information, as bad check from the customers. So it can be controlled and avoid from the fraud of the employee.
There are occupational discrepancies between physical inventory account and the perpetual inventory records.
Possible cause of the condition
Unintentional losses of assets, assets (inventory) may be lost or misplaced by accident. It means that if newly received inventory maybe put the wrong warehouse bins, the pickers do not find it when filling orders and the data as well as the physical assets may be lost. So, it could be a difference between the physical inventory account and the perpetual inventory records.
Theft of assets, the inventory maybe stolen by outsiders, such as professional thieves who break into a storeroom or maybe stolen by the employee of the company.
The action to be taken and/or controls to be implemented
In this case, the internal audit staff should control, check, and count it first according to the physical inventory in the storeroom. After that, to keep the inventory save, the manager have to protect from unauthorized access known as access control includes security guards, fenced in area, burglar and fire exit alarms, motion detection alarms, locked doors, closed-circuit television monitors, safes, insurance coverage. Besides that, a complementary measure is close supervision of employees who handle the inventory.
The auditor notice alteration to physical count and perpetual records.
The action to be taken and/or controls to be implemented
An amount control total, the total of the values in amount or quantity field
An hash total, the total of values in an identification field
A record count, the total number of source documents, hence transactions being processed in a batch
There is high percentage of customer refund and credits
The action to be taken and/or controls to be implemented this case show that the company doesn’t have a clear regulation that concern about refund, and it makes customer can refund whenever they want even it’s customer fault if the stuff that they buy is broken by themselves. As for credits, it looks like the company doesn’t give a clear terms of payment to the customer, so that the customer doesn’t pay their credits and the company doesn’t even try to tell them about it. For solving this problem , the company must concern in the making of a clear regulation and procedure, so it will reduce customer refunds and credits. If it happens for a long time, it’ll be hard for the company to get more profit

Many original documents are missing or lost. However, there are substitute copies of all missing originals.
Possible cause of the condition
Breaches of security, unauthorized persons may gain access to firm’s document, like “hacker” may break into a firm’s computerized files via a distant terminal and take the document.
Act of violence and natural disasters, certain violent acts cause damage to the firm’s document and the natural disaster, such as hurricanes and floods may destroy the document, so it will be lost.
The action to be taken and/or controls to be implemented
The manager should protect from unauthorized access to data and information by giving password to allow access to authorized users and to restrict each user to the data or information and programs. On the other hand, it must be a protection from natural disasters or environmentally controlled, such as constructing computer centre on high terrain that will minimize the threat of floods, computer facilities should be constructed of fireproof materials and should contain a fireproof vault to serve as the document. Then, the manager also should recovery and reconstruction of lost data.
An unexplained decrease in the gross profit percentage has occurred.
The action to be taken and/or controls to be implemented just like the situation number five, I think the amount of gross profit percentage of customer refund and credit. So, to fix this situation, I think we should fix the situation number five, so we can get the actual gross profit.
Many documents are not countersigned.
The action to be taken and/or controls to be implemented if the document are not countersigned, its means there’s no approval for the documents, so the company can’t make any operation regarding the document that are not countersigned. And from what I think there’s should be an error an authorization may appear as a signature and so on. And then the authorization are generally reflected through transaction documents so if there’s no any signature, it’s impossible to go to the next step because there’s no approval.
Task 5 (Discussion Task)
Internal Control Analysis 2
Main Problem : The errors and fraud conditions in management at Covington, Inc.
Analyze Problem : * What causes of the errors and fraud conditions? * How to determine or detect the errors and fraud of the condition? * How to prevent or control to be implemented that would correct the condition?

Learning objective : * Identify the exposures to risk that a firm’s faces with respect to assets and data, including those involving fraud * Describe security measures that pertain to physical non-computer resources * Discuss security measures for data and information * Identify controls, security, and audit measures that pertain particularly to computer networks

Solution 9. Daily bank deposit do not always correspond with the cash receipt c. Possible cause of the condition * Unintentional errors, errors may appear in input data called human errors, such as names or number. Maybe, when the clerical and operational employees-who process transactional data and have access to assets, enter the daily bank deposit, the names or number is not suitable. These errors may often occur on an occasional and random basis, like a clerk accidentally cross out the wrong key on a terminal keyboard. So, the erroneous data will damage the accuracy and reliability of a files and outputs. It means that, the daily bank deposit cannot appropriate with the cash receipt. * Deliberate errors or fraud. These irregularities may appear in input data (daily bank deposit), during processing, or in generated outputs (cash receipt). In short, a clerk may increase or decrease the amount on the cash receipt. d. The action to be taken and/or controls to be implemented * The internal audit staff should design a security for data and information to combat fraud and irregularities provide protection from unauthorized access to data and information by giving password to allow access to authorized users and to restrict each user to the data or information and programs; protection from undetected access of data and information which is not correspond names, number and etc. So, it can reduce the risk from exposures.

10. Bad check from customers usually are reviewed and approved by the same employee e. Possible cause of the condition * Deliberate errors constitute fraud. In this condition, maybe there is a fraud between the employee and customers because the same employee wants to review and approve the check. So the employee may increase the amount on a check received from the customer or underfoot a column of cash receipt. f. The action to be taken and/or controls to be implemented * In this fraud condition, internal audit staff must check first about the check received. Then, they should make a security to protect from the unauthorized data and information, as bad check from the customers. So it can be controlled and avoid from the fraud of the employee.