A. QUESTIONS1. What is internal control? Why is internal control important in organization?2. What are the four basic purposes of internal control? Give an example of each one?B. EXERCISE1. The California State University (CSU) system is the largest four-year higher educationsystem in the United States. In 2004, all twenty-three CSU campuses adopted PeopleSoft,an enterprise resource planning system, for managing finances, personnel records andother important functions. The project was referred to as the Common ManagementSystem (CMS). Considering Brown’s taxonomy of risk, identify five risks the CSU and itsmanagement took by making the PeopleSoft decision.2. The following is a question in which one is expected to evaluate internal controls.The Art Appreciation Society operates a museum for the benefit and enjoyment of the community.During hours when the museum is open to the public, two clerks who are positioned at theentrance collect a $5 admission fee from each nonmember patron. Members of the ArtAppreciation Society are permitted to enter free of charge upon presentation of their membershipcards.At the end of each day one of the clerks delivers the proceeds to the treasurer. The treasurercounts the cash in the presence of the clerk and places it in a safe. Each Friday afternoon thetreasurer and one of the clerks deliver all cash held in the safe to the bank, and receive anauthenticated deposit slip which provides the basis for the weekly entry in the cash receipts journal.The Board of Directors of the Art Appreciation Society has identified a need to improve their systemof internal control over cash admission fees.The Board had determined that the cost of installing turnstiles, sales booths, or otherwise alteringthe physical layout of the museum will greatly exceed any benefits that may be derived. However,the Board has agreed that the sale of admission tickets must be an integral part of its improvementefforts.Smith has been asked by the Board of Directors of the Art Appreciation Society to review theinternal control over cash admission fees and provide suggestions for improvement.RequiredIndicate weaknesses in the existing system of internal control over cash admission fees, which Smithshould identify, and recommend one improvement for each of the weaknesses identified.

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