Deck 8: Fraud, Internal Control, and Cash

Question 1

In a voucher system vouchers are prepared in the accounts receivable department.

Answer 1

False

Question 2

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

Answer 2

True

Question 3

Management is responsible for establishing a system of internal control.

Answer 3

True

Question 4

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

Question 5

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

Question 6

Only large companies need to be concerned with a system of internal control.

Question 7

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

Question 8

Internal control is mainly concerned with the amount of authority a supervisor over a subordinate.

Question 9

Firms use physical controls primarily to safeguard their assets.

Question 10

A highly automated computerized system of accounting eliminates the need for internal control.

Question 11

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

Question 12

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

Question 13

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 14

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

Question 15

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

Question 16

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

Question 17

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

Question 18

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

Question 19

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

Question 20

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

Question 21

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

Question 22

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

Question 23

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) Reduce the risks of errors

Question 24

Internal controls are concerned with

A) only manual systems of accounting.
B) the extent of government regulations.
C) safeguarding assets.
D) preparing income tax returns.

Question 25

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

Question 26

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 27

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

Question 28

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

Question 29

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

Question 30

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 31

Internal control consists of the plan of organization and all of the related methods and measures adopted within a business to (a) safeguard its assets and (b) enhance the accuracy and reliability of its accounting records.

Question 32

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

Question 33

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

Question 34

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

Question 35

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

Question 36

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

Question 37

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

Question 38

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

Question 39

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

Question 40

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

Question 41

Related purchasing activities include

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

Question 42

Related selling activities do not include

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

Question 43

Bonding personnel who handle cash and conducting background checks

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

Question 44

From an internal control standpoint the asset most susceptible to improper diversion and use is

A) prepaid insurance.
B) cash.
C) buildings.
D) land.

Question 45

Having one person post entries to accounts receivable subsidiary ledger and a different person post to the Accounts Receivable Control account in the general ledger is an example of

A) inadequate internal control.
B) duplication of effort.
C) external verification.
D) segregation of duties.

Question 46

The most important element of the fraud triangle is

A) financial pressure.
B) incompatible duties.
C) opportunity.
D) rationalization.

Question 47

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 48

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 49

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 50

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 51

Jared 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 52

Internal controls are not designed to safeguard assets from

A) natural disasters.
B) employee theft.
C) robbery.
D) unauthorized use.

Question 53

All of the following requirements about internal controls were enacted under the Sarbanes Oxley Act except

A) independent outside auditors must attest to the level of internal control.
B) companies must develop sound internal controls over financial reporting.
C) companies must continually assess the functionality of internal controls.
D) independent outside auditors must eliminate redundant internal controls.

Question 54

The independent internal verification principle involves each of the following except the ______________ of data prepared by other employees.

A) comparison
B) reconciliation
C) review
D) segregation

Question 55

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

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

Question 56

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 57

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 58

Internal control is defined in part as a plan that safeguards

A) all balance sheet accounts.
B) assets.
C) liabilities.
D) capital stock.

Question 59

Internal auditors

A) are hired by CPA firms to audit business firms.
B) are employees of the IRS 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 60

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 61

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 62

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

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

Question 63

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 64

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 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) other controls.
D) establishment of responsibility.

Question 68

Physical controls to safeguard assets do not include

A) cashier department supervisors.
B) vaults.
C) employee identification badges.
D) security guards.

Question 69

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

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

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

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 72

Postage stamps on hand are considered to be

A) cash.
B) petty cash.
C) cash equivalents.
D) a prepaid expense.

Question 73

Computer facilities with pass key access or fingerprint scans are

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

Question 74

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 75

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 76

Which one of the following items would not be considered cash?

A) Coins
B) Money orders
C) Currency
D) All of these choices are considered cash.

Question 77

Gretchen Gobbell Grace has worked for Hitone 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 78

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 79

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

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

Question 80

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.