Question

Fork Company is a rapidly growing start-up business. The bookkeeper, who was hired ten months ago, left Hong Kong after the company's manager discovered that a large sum of money had disappeared over the past two months. An audit discovered that the bookkeeper had written and signed several checks made payable to his girlfriend and then recorded the checks as salaries expense. The girlfriend, who cashed the checks had never worked for the company, left Hong Kong with the bookkeeper. As a result, the company incurred an uninsured loss of $110,000.

Required: Discuss which principles of internal control (EXCEPT Separation of duties, no need to mention it) appear to have been ignored for the Fork Company

EXCEPT Separation of duties

Answer 1

Authorisation of amount going outside the company. Yes, there should be a proper authorisation before every dollar is going out of the company. This authority must ensure that the amount is getting paid towards a genuine expense only. Salary payments must be authorised by respective HR head.

Only after such authorisation, checks are to be signed.