You are a finance intern at Chambers and Sons and they have asked you to help estimate the company's cost of common equity. You
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Answer: Please refer to Explanation
Explanation:
When there are no or relatively low control procedures in a company, there is a threat of financial mismanagement and misdemeanors. This is why control procedures are needed, to address this and stop the leakage of company resources.
1. Failing to take available purchase discounts for prompt payment.
d. File invoices by due date.
e. Maintain a cash budget.
Here two things can be done to control the threat. Firstly, by paying invoices during the discount period, the company can be able to take discounts on goods and services provided to it. Also by maintaining a cash budget, a company can put when a payment is due to be able to claim a discount and act accordingly.
2. Recording and posting errors in accounts payable.
Conduct an automated comparison of total change in cash to total changes in accounts payable.
Using a program to check whether the amounts in the cash account corresponds to the payments on the Accounts payable account will tell you if the amounts tally and will therefore reduce errors.
3. Paying for items not received.
Issue checks only for complete voucher packages (receiving report, supplier invoice, and purchase order).
When issuing checks, make sure that all the above mentioned reports are in order. That way you can check if the goods were delivered as well as if they were even ordered properly in the first place.
4. Kickbacks.
Require purchasing agents to disclose financial or personal interests in suppliers.
Train employees in how to properly respond to gifts or incentives offered by suppliers.
By requiring that purchase agents disclose their relationships with suppliers, you can monitor to check and see if there is a possibility of kickbacks occuring.
Also, by training employees on acceptable methods of receiving gifts, they can know when it is no longer a gift but rather a kickback.
5. Theft of inventory.
b. Document all transfers of inventory. c. Restrict physical access to inventory.
By documenting all transfers going in and out of inventory, the true inventory figure can be known from the records and then used to match with the actual inventory to see if they truly tally.
Restricting the amount of people who have access to the inventory to a few trusted people also limits the amount of people who can steal the inventory as well as making it easier to find out who did when it is done because the focus can be on a few people.
