1. Internal controls should have included these controls;-Adequate security for the inventory-Better periodic verification of inventory-Segregated duties when it comes to inventory-Proper supervision for sales transactions and the procedures that they employ to record them-Proper authorization by management for inventory transactions.
2. Internal control weaknesses- Lack of segregation of duties involving sales and recording-Security controls over inventory-Documents were not processed at a timely basis-The lack of control procedures in the sales office.3. One employee should have been in charge of maintaining the inventory. He would be responsible for keeping records of who had access to the inventory.
Having video surveillance or a code at the entrance of the warehouse would have helped a lot. Small companies don't always have the funding available for segregation of duties but there is always certain things that can be done to help monitoring. The company should have conducted more physical inventory counts and tracked transactions from the origin until they were recorded.4. The inventory losses were not solely the responsibility of the salesman, he took advantage of weak internal control procedures. The CEO should have been aware of weak internal control procedures and should have established stronger controls for inventory transactions.
During the regular audit, the auditors didn't discover the weaknesses in the internal controls of the company regarding inventory, it suggest that they rely too much on management assertions and internal documents to issue an audit opinion.The supervisor of the salesman had records of customer complaints but there's no evidence that those complaints were investigate. The owner failed to establish a good control environment where they could monitor day to day activities. The company grew large and they had no more control over policies.
