...Goodner Brothers, Inc. Internal Control Issues 1.List what you believe should have been the three to five key internal control objectives for Goodner’s Huntington sales office. 1. Assets Safeguard The padlock and other some security are used as a physical protection of Goodner’s inventory from stolen by unauthorized person. 2. Authorization of Transaction Goodner’s policy said that the new customer required an approval of the sale manager for the credit sale. The objective of this policy is to control the authorization of employee by using an approval from the senior manager to determine the credit term of new customer. 3. Top-level reviews Annual review by the internal audit is used in order to inspire the operation and compare the performance with a plan of the business, so that the company can find out that there are any problems or fraud or not. 4. Human Resource Policies and Practices Goodner’s policy about hiring an employee is relied on honesty and integrity of the employee which is required 3 strong as references and preferably from reputable individual with some connection to Goodner Brother. 5. Adequate Document and Records The computerized accounting system is used at each Goodner sales outlet. The system will record the sale and purchase transactions which were recorded by the bookkeeper and sales representative. So the company can record all transaction from each sale outlet. 2. List the key internal control weaknesses that were...
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...Case 3.5 Goodner Brothers, Inc. OBJECTIVE: To better understand the nature at which fraud can occur in a business, specifically due to weak internal controls, and to examine the characteristics of a fraudster. IMPORTANT HIGHLIGHTS: * Goodner Brothers, Inc.’s sloppy accounting practices and lax control over its inventory opened doors for theft and other types of fraud to occur internally * The lack of attention and importance that Goodner Brothers, Inc. put into their internal control system in order to cut corners * The importance of proper and professional auditing procedures in detecting fraudulent activity in a company PROBLEMS FACED IN COMPLETING THE CASE: * Goodner Brothers, Inc. focused much attention on margins and profits, they scrimped on their security and operating expenses which in turn increased their internal control risk * The ease with which an employee, familiar with the company’s internal controls and procedures, could embezzle money LESSONS LEARNED: * A person’s external pressures can be so intense that these pressures can influence even a good, hardworking employee to commit fraud towards their own company. * It is worth the extra detail, time, and expenditures spent towards a company’s internal control measures because even the most ‘loyal’ and long-time employees may steal. QUESTIONS: 1. Internal control objectives: * Stronger padlocks and security systems should have been enforced in the sales outlets...
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...Case 3.3 1. First, every organization should have procedures to monitor and record assets received, held and expended. Ensuring that grants and contributions received are properly recorded, accountings required as a condition of any grant are completed and restrictions on the use of such funds, such as contributions given for a restricted purpose and prohibitions on the use of the principal of an endowment, are obeyed. Second, the accounting responsibilities should be segregated so that no single individual is responsible for receiving, recording and depositing funds or writing and signing checks. Third, the organization should do requisitioning, authorizing, verifying, recording and monitoring all expenditures. 2. I think CPA firms generally don’t have the responsibility to audit charitable organizations at a reduced cost because it is the organizations responsibilities to set up an audit committee if necessary to seek and evaluate the organization’s financial accountability. Moreover, charitable organizations should design an active and efficient internal control system to manage its financial activities. However, if CPA firms could do this within the cost constrain, then it could help build the CPA firm’s public image, which is somehow a kind of intangible asset to the firm. 3. Due to the scope and nature of charitable organizations, most of the revenue is generated through donations from an outside party to be freely used or allocated to specific projects; the...
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...Case 3.5 – Coodner Brothers, Inc. 1. List what you believe should have been the three to five key internal control objectives of Goodner’s Huntington sales office. * Existence – Record the purchase orders in standard form as soon as sales reps receive them. * Rights and obligations – Limit rights for sales reps. * Completeness – Record the purchase order, ship the inventory, and receive payment. * Valuation – Keep accuracy for the value. 2. List the key internal control weaknesses that were evident in the Huntington unit’s operations. * Ineffective controls of physically counting * Sales rep (Woody) involved in physically counting and took the count sheets for both team to the sales office, which mean offered him chances to manipulate the numbers * Ineffective accounting procedures that do not tie recorded purchases to receiving data * The sales reps often jotted the details of a transaction on a piece of scrap paper and entered information later either by themselves or others. * Unrestricted access to the computerized accounting system * Unit’s sales manager, two sales reps and bookkeeper had unrestricted access to the accounting system. * Lack of separation of duties * Sales reps had direct access to the inventory storage areas * Sales reps can load and delivered customer orders themselves * Sales reps had unrestricted access to the computerized accounting system * Sales reps involved physical counting ...
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...KNAPP CASE 3.5 : GOODNER BROTHERS, INC. 1. Internal control objectives Goodner’s Huntington sales office should have implemented: a. Separation of duties: Sales reps like Woody were given unrestricted access to the accounting system where they could directly enter transactions. Sales reps also had direct access to inventory storage areas, and often delivered customer orders. b. Physical controls: Pad locks served as the security of Goodner’s inventory. There should have been stronger security since the value ranged from $300,000 - $700,000. c. Monitoring: Management should have monitored inventory more often than once a year. Also, “throwaways” were not adjusted to accounting records until the year-end inventory was taken. 2. Huntington unit’s operations displayed internal control weaknesses. One main weakness was giving sales representatives so much access. Sales reps did not keep proper documentation of sales orders and had direct access to the accounting system. This gave the internal auditors no way to verify sales amounts. Sales representatives also had direct access to inventory storage units. 3. The Huntington unit should require all sales reps to fill out proper sales order or credit forms. Sales reps should not have direct access to the accounting system; access should only be given to the bookkeeper. Sales reps should also not be allowed to make personal deliveries for customers. 4. Felix Garcia was partially responsible for Goodner’s...
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...CONTEMPORARY AUDITING REAL ISSUES & CASES MICHAEL C. KNAPP SEVENTH EDITION MAKE IT YOURS! SELECT JUST THE CASES YOU NEED Through Cengage Learning’s Make It Yours, you can — simply, quickly, and affordably — create a quality auditing text that is tailored to your course. • Pick your coverage and only pay for the cases you use. • Add cases from a prior edition of Knapp’s Contemporary Auditing. • Add your course materials and assignments. • Pick your own unique cover design. We recognize that not every program covers the same cases and topics in your auditing course. Chris Knapp wrote his case book for people to use either as a core e book or as a supplement to an existing book. If you would like to use a custom auditing case book or supplement the South-Western accounting book you are currently using, simply check the cases you want to include, indicate if there are other course materials you would like to add, and click submit. A Cengage Learning representative will contact you to review and confirm your order. G E T S T A R T E D Visit www.custom.cengage.com/makeityours/knapp7e to make your selections and provide details on anything else you would like to include. Prefer to use pen and paper? No problem. Fill out questions 1-4 and fax this form to 1.800.270.3310. A Custom Solutions editor will contact you within 2-3 business days to discuss the options you have selected. 1. Which of the following cases would you like to include? Section...
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...A CONTEMPORARY AUDITING REAL ISSUES AND CASES Seventh Edition Michael C. Knapp University of Oklahoma ; \ 1% SOUTH-WESTERN CENGAGE Learning- Australia • Brazil • Japan • Korea • Mexico • Singapore • Spain • United Kingdom • United States CONTENTS SECTION 1 Comprehensive Cases 1 Case 1.1 Enron Corporation 3 Arthur Edward Andersen established a simple motto that he required his subordinates and clients to invoke: "Think straight, talk straight." For decades, that motto sewed Arthur Andersen & Co. well. Unfortunately, the firm's association with one client, Enron Corporation, abruptly ended Andersen's long and proud history in the public accounting profession. K Y TOPICS: history of the public accounting profession in the United States, scope of E professional services provided to audit clients, auditor independence, and retention of audit workpapers. ; Case 1.2 Just for FEET, Inc. 23 In the fall of 1999, just a few months after reporting a record profit for fiscal 1998, Just for Feet collapsed and filed for bankruptcy. Subsequent investigations by law enforcement authorities revealed a massive accounting fraud that had grossly misrepresented the company's reported operating results. Key features of the fraud were improper accounting for "vendor allowances" and intentional understatements of the company's inventory valuation allowance. K Y TOPICS: applying analytical procedures, identifying inherent risk and control risk E factors, need for auditors to monitor...
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