Reference no: EM132379664
Question
Exercise 1 - Internal Control & Governance
Scott Caldwell entered Harvest House Ministries, an Australian drug and alcohol rehabilitation facility, to try to kick a severe case of alcoholism. He got sober, and while he was residing at Harvest House he worked hard on-and ultimately earned-a professional accounting certificate.
By this time, Scott was well-known to everyone at Harvest House, and thanks to his pleasant personality, had become wellliked-even trusted. So trusted was Scott by the directors of the organization, that they offered him a full-time job as a bookkeeper. He was given full authority to handle Harvest House's day-to-day financial transactions and maintain its financial records.
To Scott, nothing more wonderful could have happened. Everything went along fine for about five years and Scott proved to be a reliable employee. Until . . .A long-overdue surprise audit revealed that Scott had been diverting Harvest House funds to his own personal accounts for three full years. He had managed to embezzle about $300,000 from the charity's payroll and fundraising accounts before the audit revealed his fraud.
Required
How could this fraud have been prevented? List four (4) internal control measures that should have been implemented to prevent this fraud.
Exercise 2 - Internal Control & Governance
A food distribution company with 150 employees was experiencing financial problems. The board engaged a local auditor to review the books. The auditor discovered that the company's two cofounders had accumulated over $150,000 in credit card debt on their business credit cards. Further investigation determined that the majority of the credit card charges were for personal expenses rather than business-related ones. Before a solution could be implemented, the company was forced to file for bankruptcy. All employees, except the minimum number required to operate the business, immediately lost their jobs.
Required
How could this fraud have been prevented? List four (4) internal control measures that should have been implemented to prevent this fraud.
Exercise 3 - Internal Control & Governance
Rabbit Ears Pet Food Ltd recently changed its system of internal control over cash disbursements. The system includes the following features. Instead of being unnumbered and manually prepared, all cheques must now be prenumbered. Before a cheque can be issued, each invoice must have the approval of Cindy Morris, the purchasing manager, and Ray Mills, the receiving department supervisor. Cheques must be signed by either Frank Malone, the accountant, or Mary Arno, the assistant accountant. Before signing a cheque, the signer is expected to compare the amounts of the cheque with the amounts on the invoice.
After signing a cheque, the signer stamps the invoice 'paid' and inserts within the stamp, the date, cheque number and amount of the cheque. The 'paid' invoice is then sent to the accounting department for recording. Blank cheques are stored in a safe in the accountant's office. The combination to the safe is known by only the accountant and assistant accountant. Each month the bank statement is reconciled with the bank balance per books by the assistant managing director.
Required
Identify and explain about six (6) internal control principles and their application to cash disbursements of Rabbit Ears Pet Food Ltd.