Main objective of internal control

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CASE STUDY

Alan Smith is currently part of a university work experience program. His job placement is at the municipal transit center. His supervisor is responsible for the recording and distribution of monthly transit passes to authorized vendors throughout the city. The vendors pay €50 per bus pass and sell them for €55. His job is preparing a monthly reconciliation of the transit passes including the quantity sold, the number actually distributed, the unsold passes, and the cash proceeds. He is unable to reconcile the past two months. The bus passes are sequentially numbered and, in checking the sequence, he notices that numbers 9750 to 9820, 11012 to 11750, and 22000 to 22440 cannot be accounted for. He brings this to the attention of the supervisor, who tells him that reconciliations are never done; the job was created by her superior "to give him something to do" and he is told not to worry about it.

QUESTIONS

Question 1: What is the main objective of internal control and how is it accomplished?

Question 2: Why should record-keeping of assets be separated from custody over the assets?

Question 3: Quantify the potential error that the missing bus passes could create. Should the findings be reported?

Reference no: EM132419477

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