Internal Control Components

p6. Faubert Company, a small electronics distributor, has experienced losses of inven- tory over the past year. Melissa Faubert, the owner, on the advice of her accountant, has adopted a set of internal controls in an effort to stop the losses. Faubert has taken the following steps:

1.    She encourages employees to follow the rules.

2.    She regularly considers ways in which inventory losses might occur.

3.    She puts separation of duties in place.

4.    She gathers appropriate information and communicates it to employees.

5.    She sees that new and existing employees are well trained and instructed in their duties.

6.    She makes sure inventories are physically protected with locked storage and elec- tronic monitors.

7.    She observes and reviews how procedures by those who report to her are carried out.

8.    She had her accountant install a better accounting system over inventory.

9.    She trains new employees in how to properly carry out control procedures.

ReQUIReD

1.    Show that Faubert’s new system engages all the components of internal control by matching each of the steps with the internal control components that follow. (Hint: Some may have more than one answer.)

 

a.    Control environment

b.    Risk assessment

c.    Information and communication

 

d.   Control activities

e.    Monitoring

 

 

 

2.    Business appliCation ▶ As the owner of a small company, why is it important that Melissa take an active part in the management of the internal control system?