EX 7-1: Section 404 of the Sarbanes-Oxley act requires management to disclose the company's internal control structure and procedures for financial reporting. EX 7-2: a. I disagree with Joan’s method, since she relies on one employee for the physical cash, and the actual written proof. Any employee can easily abuse this system, and steal from the company. b. Joan handled this situation decently, but she could have taken the punishment a bit further. She was too nice about this, and probably should have fired this employee. c. Joan’s system is not good. Since only one person is touching the money the entire time, they can take the money without anyone realizing. More than one person should be involved with the cash register to make it harder for one person to get away with stealing money. Ex 7-3: a. Sales clerks can use the store’s return policy to steal money from the cash register because no receipt is required to get refunded money for the product. The clerk can have someone who “returned” merchandise, and take the money. b.The cash thefts are easier because there is no need to have physical proof of a receipt to explain the missing cash. c. Using store credit instead of cash can reduce the possibility of theft. Some benefits of using store credit are that it is not a physical asset so it is harder to just leave with the money. A disadvantage is that it is more complicated to give store credit for legitimate returns and may make customers unhappy. d. If two people needed to be present when a return is made then it would discourage any potential thieves. By requiring more than one person to be present, both people would need to be ok with the action for it to go unnoticed.
EX 7-4: As an auditor, I wouldn't approve of this policy because it give the president too much power. He should have someone to check loans that are above ten thousand dollars because it is a large investment. With only one person reviewing the file, it can cause a lot of corruption which leads to fraud. If a second person looked over the loan they could make sure that it is a legitimate loan that could help the company. EX 7-5: There could have been many reasons why internal controls contributed to the loss of this much money, but there’s no exact details. If I had to guess, the company probably used a majority of computer software, and didn’t focus on having employees/management check files and records. Also, the company could have checked on their employee’s, and made sure they took some sick or vacation days.