Deck 7: Fraud, Internal Control, and Cash

Question 1

Firms use physical controls primarily to safeguard their assets.

Answer 1

True

Question 2

The petty cash fund eliminates the need for a bank checking account.

Answer 2

False

Question 3

In order to prevent a transaction from being recorded more than once, a company should maintain only one book of original entry.

Answer 3

False

Question 4

Cash registers are an important internal control device used in controlling over-the-counter receipts.

Question 5

Internal control is most effective when several people are responsible for a given task.

Question 6

The responsibility for ordering, receiving, and paying for merchandise should be assigned to different individuals.

Question 7

For efficiency of operations and better control over cash, a company should maintain only one bank account.

Question 8

A segregation of duties among employees eliminates the possibility of collusion.

Question 9

A voucher system is used by many large companies as a means of controlling cash receipts.

Question 10

An effective system of internal control requires that at least two individuals be assigned to one cash drawer so that each can serve as check on the other.

Question 11

The safeguarding of assets is an objective of a company's system of internal control.

Question 12

Employees sometimes commit fraud because of personal financial problems caused by too much debt.

Question 13

Electronic Funds Transfer (EFT) is a disbursement system that uses telephone or computer to transfer cash from one location to another.

Question 14

Control over cash disbursements is improved if major expenditures are paid by check.

Question 15

The extent of internal control features adopted by a company must be evaluated in terms of cost-benefit.

Question 16

Internal control systems must be monitored periodically for their adequacy.

Question 17

Requiring employees to take vacations is a weakness in the system of internal controls because it does not promote operational efficiency.

Question 18

The most important element of the fraud triangle is rationalization.

Question 19

Checks received in the mail should be immediately stamped "NSF" to prevent unauthorized cashing of the check.

Question 20

The responsibility for keeping the records for an asset should be separate from the physical custody of that asset.

Question 21

All reconciling items in determining the adjusted cash balance per books require the depositor to make adjusting journal entries to the Cash account.

Question 22

In general, documents should be prenumbered and all documents should be accounted for.

Question 23

Because cash is the least liquid current asset it is listed last in the current assets section of the statement of financial position.

Question 24

Savings accounts are usually classified as cash on the statement of financial position.

Question 25

A deposit ticket is a negotiable instrument that can be transferred to another party by endorsement.

Question 26

Cash equivalents are highly liquid investments that can be converted into a specific amount of cash.

Question 27

Petty cash funds are not included in the cash balance reported on the statement of financial position.

Question 28

Certificates of deposit are currently classified as cash on the statement of financial position.

Question 29

A compensating balance is included in the amount of cash reported on the statement of financial position.

Question 30

Because cash is the most liquid current asset it is listed first in the current assets section of the statement of financial position.

Question 31

If a company deposits all its receipts in the bank and pays all its bills by check, then the monthly bank statement balance will always agree with the company's record of its checking account balance.

Question 32

Collusion may result when one individual circumvents prescribed controls and may significantly impair the effectiveness of a system.

Question 33

Cash equivalents, such as highly liquid investments that can be converted into a specific amount of cash, are currently reported with cash on the statement of financial position.

Question 34

Short-term, highly liquid investments are currently reported as short-term investments on the statement of financial position.

Question 35

Checks from customers who pay their accounts promptly are called outstanding checks.

Question 36

Cash equivalents are currently reported as short-term investments on the statement of financial position.

Question 37

A bank reconciliation is generally prepared by the bank and sent to the depositor along with cancelled checks.

Question 38

Internal control consists of all the related methods and measures adopted within an organisation to safeguard its assets, enhance the reliability of its accounting records, increase efficiency of operations, and ensure compliance with laws and regulations.

Question 39

Cash which is restricted for a specific use should be separately reported.

Question 40

Cash register overages are deposited in the petty cash fund and cash shortages are made-up from the petty cash fund.

Question 41

Internal control is defined, in part, as a plan that safeguards

A) all statement of financial position accounts.
B) assets.
C) liabilities.
D) equity.

Question 42

The control principle related to not having the same person authorize and pay for goods is known as

A) establishment of responsibility.
B) independent internal verification.
C) segregation of duties.
D) rotation of duties.

Question 43

Which one of the following is not an objective of a system of internal controls?

A) Safeguard company assets
B) Overstate liabilities in order to be conservative
C) Enhance the accuracy and reliability of accounting records
D) Increase efficiency of operations

Question 44

Related selling activities do not include

A) ordering the merchandise.
B) making a sale.
C) shipping the goods.
D) billing the customer.

Question 45

Joe is warehouse custodian and also maintains the accounting record of the inventory held at the warehouse. An assessment of this situation indicates

A) documentation procedures are violated.
B) independent internal verification is violated.
C) segregation of duties is violated.
D) establishment of responsibility is violated.

Question 46

The custodian of a company asset should

A) have access to the accounting records for that asset.
B) be someone outside the company.
C) not have access to the accounting records for that asset.
D) be an accountant.

Question 47

An accounts payable clerk also has access to the approved supplier master file for purchases. The control principle of

A) establishment of responsibility is violated.
B) independent internal verification is violated.
C) documentation procedures is violated.
D) segregation of duties is violated.

Question 48

The custodian of the petty cash fund has the responsibility of recording a journal entry every time cash is used from the fund.

Question 49

Which of the following is not one of the main factors that contribute to fraudulent activity?

A) Opportunity
B) Incompatible duties
C) Financial pressure
D) Rationalization

Question 50

Controls that enhance the accuracy and reliability of the accounting records are

A) automated controls.
B) external controls.
C) physical controls.
D) human resource.

Question 51

When two or more people get together for the purpose of circumventing prescribed controls, it is called

A) a fraud committee.
B) collusion.
C) a division of duties.
D) bonding of employees.

Question 52

The principle of establishing responsibility does not include

A) one person being responsible for one task.
B) authorization of transactions.
C) independent internal verification.
D) approval of transactions.

Question 53

To obtain maximum benefit from a bank reconciliation, the reconciliation should be prepared by an employee who has no other responsibilities pertaining to cash.

Question 54

A debit memorandum could show the collection of a note receivable by the bank.

Question 55

Personnel who handle cash receipts should have the option of taking a vacation or not.

Question 56

Related purchasing activities include

A) ordering, receiving, paying.
B) ordering, selling, paying.
C) ordering, shipping, billing.
D) selling, shipping, paying.

Question 57

Internal auditors

A) are hired by accounting firms to audit business firms.
B) are employees of the taxing authority who evaluate the internal controls of companies filing tax returns.
C) evaluate the system of internal controls for the companies that employ them.
D) cannot evaluate the system of internal controls of the company that employs them because they are not independent.

Question 58

The duties of approving an item for payment and paying the item should be done by different departments or individuals.

Question 59

Two individuals at a retail store work the same cash register. You evaluate this situation as

A) a violation of establishment of responsibility.
B) a violation of segregation of duties.
C) supporting the establishment of responsibility.
D) supporting internal independent verification.

Question 60

Having one person responsible for the related activities of ordering merchandise, receiving goods, and paying for them

A) increases the potential for errors and irregularities.
B) decreases the potential for errors and irregularities.
C) is an example of good internal control.
D) is a good example of safeguarding the company's assets.

Question 61

Physical controls to safeguard assets do not include

A) cashier department supervisors.
B) vaults.
C) television monitors.
D) security guards.

Question 62

Control over cash disbursements is generally more effective when

A) all bills are paid in cash.
B) disbursements are made by the accounts payable subsidiary clerk.
C) payments are made by check.
D) all purchases are made on credit.

Question 63

An exception to disbursements being made by check is acceptable when cash is paid

A) to an owner.
B) to employees as wages.
C) from petty cash.
D) to employees as loans.

Question 64

A system of internal control

A) is infallible.
B) can be rendered ineffective by employee collusion.
C) invariably will have costs exceeding benefits.
D) is premised on the concept of absolute assurance.

Question 65

Proper control for over-the-counter cash receipts includes

A) a cash register with totals visible to the customer.
B) using electronic cash registers with no tapes.
C) cash count sheets requiring only the supervisor's signature.
D) cash count sheets requiring only the cashier's signature.

Question 66

Allowing only designated personnel to handle cash receipts is an example of

A) establishment of responsibility.
B) segregation of duties.
C) documentation procedures.
D) independent internal verification.

Question 67

Allowing only the treasurer to sign checks is an example of

A) documentation procedures.
B) segregation of duties.
C) human resource controls.
D) establishment of responsibility.

Question 68

If employees are bonded

A) it means that they are not allowed to handle cash.
B) they have worked for the company for at least 10 years.
C) they have been insured against misappropriation of assets.
D) it is impossible for them to steal from the company.

Question 69

Blank checks

A) should be safeguarded.
B) should be pre-signed.
C) do not need to be safeguarded since they must be signed to be valid.
D) should not be prenumbered.

Question 70

Maximum benefit from independent internal verification is obtained when

A) it is made on a pre-announced basis.
B) it is done by the employee possessing custody of the asset.
C) discrepancies are reported to management.
D) it is done at the time of the audit.

Question 71

Checks received through the mail should

A) immediately be endorsed "For Deposit Only."
B) be sent to the accounts receivable subsidiary ledger clerk for immediate posting to the customer's account.
C) be cashed at the bank as soon as possible.
D) be "rung up" on a cash register immediately.

Question 72

A voucher system is a series of prescribed control procedures

A) to check the credit worthiness of customers.
B) designed to assure that disbursements by check are proper.
C) which eliminates the need for a sales journal.
D) specifically designed for small firms who may not have checking accounts.

Question 73

Mrs. Smith has worked for Grand Inc., for 20 years without taking a vacation. An internal control feature that would address this situation would be

A) human resource controls.
B) establishment of responsibility.
C) physical controls.
D) documentation procedures.

Question 74

Under a voucher system, a prenumbered voucher is prepared for every

A) cash receipt, regardless of source.
B) transaction entered into by the business.
C) expenditure except those made from petty cash.
D) journal entry.

Question 75

The daily cash count of cash register receipts made by department supervisors is an example of

A) human resource controls.
B) independent internal verification.
C) establishment of responsibility.
D) segregation of duties.

Question 76

A company stamps checks received in the mail with the words "For Deposit Only". This endorsement is called a(n)

A) blank endorsement.
B) rubber stamp.
C) restrictive endorsement.
D) operational endorsement.

Question 77

In large companies, the independent internal verification procedure is often assigned to

A) computer operators.
B) management.
C) internal auditors.
D) outside auditors.

Question 78

Reconciling the bank statement monthly is an example of

A) segregation of duties.
B) independent internal verification.
C) establishment of responsibility.
D) documentation procedures.

Question 79

The use of remittance advices for mail receipts is an example of

A) documentation procedures.
B) human resource controls.
C) physical controls.
D) independent internal verification.

Question 80

An employee authorized to sign checks should not record

A) owner cash contributions.
B) mail receipts.
C) cash disbursement transactions.
D) sales transactions.