Each of the following situations has an internal controlweakness.

a. Upside-Down Applications develops custom programs tocustomer’s specifications. Recently, development of a new programstopped while the programmers redesigned Upside-Down’s accountingsystem. Upside-Down’s accountants could have performed thistask.

b. Norma Rottler has been your trusted employee for 24 years.She performs all cash-handling and accounting duties. Ms. Rottlerjust purchased a new Lexus and a new home in an expensive suburb.As owner of the company, you wonder how she can afford theseluxuries because you pay her only $30,000 a year and she has nosource of outside income.

c. Izzie Hardwoods, a private company, falsified sales andinventory figures in order to get an important loan. The loan wentthrough, but Izzie later went bankrupt and could not repay thebank.

d. The office supply company where Pet Grooming Goods purchasessales receipts recently notified Pet Grooming Goods that itsdocuments were not pre-numbered. Howard Mustro, the owner, repliedthat he never uses receipt numbers.

e. Discount stores such as Cusco make most of their sales incash, with the remainder in credit card sales. To reduce expenses,one store manager ceases purchasing fidelity bonds on thecashier.

f. Cornelius’ Corndogs keeps all cash receipts in an empty boxfor a week because he likes to go to the bank on Tuesdays whenJoann is working.


1. Identify the missing internal control characteristics in eachsituation.

2. Identify the possible problem caused by each controlweakness.

3. Propose a solution to each internal control problem.