Home repair Corp(HRC) operates abuilding maintenance and repair business. The business has threeoffice employees- a sales manager, a crew manager and anaccountant. HRC's cash payment system is describedbelow.
A) After a contract is signed with a customer, the sales managerprepares a prenumbered purchase requisition form that indicates thematerials needed for the work at the repair site.
B)Based on the purchase requisition form, the crew manager preparesand sends a prenumbered purchase order to suppliers of materials,advising them of the specific materials needed and the repair siteto which they should be delivered.
c) The crew manager is the only employee authorized to ordergoods.
d) Upon receiving a suppliers invoice, the accountant compares itto terms indicated on the purchase order, noting in particular theprices charged and quantity ordered.
e) If these documents are in agreement, the accountant prepares aprenumbered check,stamps the invoice"paid" and prepares a journalentry to record the payment. The journal entry explanationreferences the sequential number on the purchase order.
f) HRC's owner prepares a monthly bank reconciliation and reviewchecks returned with the bank statement to ensure they have beenissued to valid suppliers.
Required :
1) For each statement (a)-(f), Identify the internal controlprinciple being applied.
(these include: establish responsibility, segragate duties,restrict access, document procedures, independently verify)
2)After several months, HRC's materials/crew manager is arrestedfor having $20,000 of materials delivered to his home, but chargedto the company. Identify the internal control weakness that allowedthis theft to occur.
