Identify one or more control procedures (either general or application controls, or both) that would guard against each of the following errors or problems.

1. Leslie Thomas, a secretary at the university, indicated that she had worked 40 hours on her regular time card. The university paid her for 400 hours worked that week.
2. The aging analysis indicated that the Grab and Run Electronics Company account was so far in arrears that the credit manager decided to cut off any further credit sales to the company until it cleared up its account. Yet, the following week, the manager noted that three new sales had been made to that company—all on credit.
3. The Small Company employed Mr. Fineus Eyeshade to perform all its accounts receivable data processing. Mr. Eyeshade’s 25 years with the company and his unassuming appearance helped him conceal the fact that he was embezzling cash collections from accounts receivable to cover his gambling losses at the race track.
4. The Blue Mountain Utility Company was having difficulty with its customer payments. The payment amounts were entered directly into a terminal, and the transaction file thus created was used to update the customer master file. Among the problems encountered with this system were the application of customer payments to the wrong accounts and the creation of multiple customer master file records for the same account.
5. The Landsford brothers had lived in Center County all their lives. Ben worked for the local mill in the accounts payable department, and Tom owned the local hardware store. The sheriff couldn’t believe that the brothers had created several dummy companies that sold fictitious merchandise to the mill. Ben had the mill pay for this merchandise in its usual fashion, and he wrote off the missing goods as “damaged inventory.”

Identify one or more control procedures (either general or application controls, or both) that would guard against each of the following errors or problems.

1. A bank deposit transaction was accidentally coded with a withdrawal code.
2. The key-entry operator keyed in the purchase order number as a nine-digit number instead of an eight-digit number.
3. The date of a customer payment was keyed 2001 instead of 2010.
4. A company employee was issued a check in the amount of −$135.65 because he had not worked a certain week, but most of his payroll deductions were automatic each week.
5. A patient filled out her medical insurance number as 123465 instead of 123456.
6. An applicant for the company stock option plan filled out her employee number as 84-7634-21. The first two digits are a department code. There is no department 84.
7. A high school student was able to log onto the telephone company’s computer as soon as he learned what telephone number to call.
8. The accounts receivable department sent 87 checks to the computer center for processing. No one realized that one check was dropped along the way and that the computer therefore processed only 86 checks.

Fairfax Recreation Center (Internal Controls at a Fitness Center)

The Fairfax Recreation Center is a neighborhood fitness center equipped with an indoor swimming pool, exercise equipment, and a running track. The Center is open seven days a week, from 8:00 A.M. to 10:00 P.M. Stationed just inside the front doors is a turnstile. An employee oversees access through the turnstile. Before anyone can enter the facility, they must either present their membership card or pay a $6 daily fee.

When the employee at the turnstile collects cash for daily fees, he or she also has the visitor complete a waiver form. The employee then deposits the cash in a locked box and files the forms. At the end of each day the Recreation Center accountant collects the cash box, opens it, removes the cash, and counts it. The accountant then gives a receipt for the cash amount to the employee on turnstile duty. The accountant takes the cash to the bank each evening. The next morning, the accountant makes an entry in the cash receipts journal for the amount indicated on the bank deposit slip.

Susan Porcano, the Fairfax Recreation Center General Manager, has some concerns about the internal controls over cash. However, she is concerned that the cost of additional controls may outweigh the benefits. She decides to ask the organization’s outside auditor to review the internal control procedures and to make suggestions for improvement.

Assume that you are the outside auditor. Indicate weaknesses in the existing internal control system over cash admission fees and recommend one improvement for each of the weaknesses you identified. Organize your answers as follows: