Reference no: EM132600296

You are an employee at a full-service bookkeeping and auditing firm called Accounting Solutions. Accounting firms are often asked to perform consulting services for clients. Your new client, Auto Parts Unlimited, is seeking a loan for an expansion project and their lender has asked about the business control and documentation procedures. Bob, the owner of Auto Parts Unlimited, has asked for your help.

You visit Auto Parts Unlimited, talk with employees, and make the following observations:

1. Betty, the purchasing manager, orders the merchandise, checks in the merchandise when it arrives, verifies that it is accurate, and then approves payment for the order.
2. You notice the purchase orders and sales invoices are not pre-numbered. You are told this is because pre-numbering the forms costs more.
3. You also notice that, to save time, the sales clerk takes orders throughout the day and enters all sales orders at the end of the day. At this time, he prepares the deposit and delivers it to the bank.
4. Jack is a long term and trusted employee of the business. He is responsible for all sales returns. He knows the products well and grants returns at his discretion.
5. Sally, the bookkeeper, has not taken a vacation in three years.
6. The owner, Bob, is very busy and overwhelmed by paperwork. He has checks brought to him twice a week and stamps his signature on them.

After your visit, you prepare the memo to Bob addressing the importance of internal control procedures and make suggestions for improvement. In correct memo format, address these topics:

Question 1: Explain the importance of good internal control procedures and summarize the elements of internal control.

Question 2: Individually address each of your observations and recommend a control activity to solve the internal control issue. Use the elements of internal control to support your recommendations.