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AIS - Problem Set - Session 12

This document describes various internal control procedures that could help prevent or detect problems in a production environment. It provides recommended controls for issues like overproduction, theft of inventory, data entry errors, and asset disposal discrepancies. The controls focus on areas like inventory tracking, segregation of duties, authorization levels, input validation, and variance analysis. The goal is to implement checks and oversight that promote accuracy and accountability across production planning and reporting.

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65 views

AIS - Problem Set - Session 12

This document describes various internal control procedures that could help prevent or detect problems in a production environment. It provides recommended controls for issues like overproduction, theft of inventory, data entry errors, and asset disposal discrepancies. The controls focus on areas like inventory tracking, segregation of duties, authorization levels, input validation, and variance analysis. The goal is to implement checks and oversight that promote accuracy and accountability across production planning and reporting.

Uploaded by

qonitahmut
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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Problem 14 – 2

What internal control procedure(s) would best prevent or detect the following problems?

a. A production order was initiated for a product that was already overstocked in the
company’s warehouse.

Base the master production schedule on


 Current data on product sales
 Product sales forecasts
 Quantities on hand
 Quantity scheduled or under production

Maintain accurate perpetual inventory records.

b. A production employee stole items of work-in-process inventory.

 Ensure good supervision by factory supervisors.


 Implement documentary control over quantities of in-process inventories and their
movement through the factory (e.g., move tickets).
 Count/record quantities at each workstation and have both parties to any transfer
acknowledge the transaction..

c. The “rush-order” tag on a partially completed production job became detached from
the materials and lost, resulting in a costly delay.

 Use rush order tags


 Have production schedules indicate the high priority jobs.
 Configure the ERP system to prepare status reports of production so that failure to
complete portions of the MPS will be detected on a timely basis.
 Use expediters to monitor work on high priority jobs.

d. A production employee entered a materials requisition form into the system in order
to steal $300 worth of parts from the raw materials storeroom.

 Limit authority to prepare or authorize materials requisitions to production planning


personnel and perhaps factory supervisors.
 Have recipient sign a copy of the requisition at the point of issue and send it to the
accounting department for subsequent posting to the work-in-process records.
 Investigate significant unexplained variances between actual and recorded work in
process.
e. A production worker entering job-time data on an online terminal mistakenly
entered 3,000 instead of 300 in the “quantity-completed” field.

 Validate input by comparing the quantity entered with the quantity scheduled during
the elapsed time.
 Flag any amounts that are unreasonably high or low and have the system display a
request that the worker reenter the quantity.

f. A production worker entering job-time data on an online terminal mistakenly posted


the completion of operation 562 to production order 7569 instead of production
order 7596.

 Have the system keep track of which order each employee is working on and
o Verify that the production order number properly corresponds to the employee
number.
o Verify that the operation number entered corresponds to the production order
number entered.
 Have any lack of correspondence cause the system to request reentry of the input
data.

g. A parts storeroom clerk issued parts in quantities 10% lower than those indicated on
several materials requisitions and stole the excess quantities.

The discrepancy should show up in an unfavorable materials usage variance, since the
shortage will necessitate requesting additional goods. To deter this type of problem:
 Require the recipient of inventories from stores to sign a requisition for the exact
quantities received
 Hold the recipient responsible for shortages to provide an incentive to accurately
count what is received.

h. A production manager stole several expensive machines and covered up the loss by
submitting a form to the accounting department indicating that the missing machines
were obsolete and should be written off as worthless.

 Limit authority to write off expensive machines to management


 Document all transactions involving the acquisition or disposal of fixed assets.
 Require a dual authorization; that is, two separate members of management must
authorize the disposal of obsolete machinery.
 Have someone not involved in the transaction review it prior to disposing of the
equipment.
i. The quantity-on-hand balance for a key component shows a negative balance.

 Use sign checks on master file balances after every file update
 Reconcile recorded amounts with a physical count of inventory
 Determine cause of errors and take corrective action to eliminate it.

j. A factory supervisor accessed the operations list file and inflated the standards for
work completed in his department. Consequently, future performance reports show
favorable budget variances for that department.

 Restrict update access to operations list to a limited number of authorized


supervisors of the engineering and product design teams.
 Review all changes to the operations list on a regular and timely basis
 Use variance analysis to determine the difference between standard and actual
usage and investigate any material differences

k. A factory supervisor wrote off a robotic assembly machine as being sold for salvage,
but actually sold the machine and pocketed the proceeds.

 Limit authority to write off machines to management


 Document all transactions involving the acquisition or disposal of fixed assets.
 Require a dual authorization; that is, two separate members of management must
authorize the disposal of obsolete machinery.
 Have someone not involved in the transaction review it prior to disposing of the
equipment.

l. Overproduction of a slow-moving product resulted in excessive inventory that had to


eventually be marked down and sold at a loss.

 Create a Master Production Schedule based on information from sales forecasts and
customer orders, taking into account inventory on hand.

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