In the Goodner Brother’s case, the company has a “sloppy accounting practices and lax control over its inventory and other assets.” The key internal control weaknesses that were evident in the Huntington unit’s operation are control environment weaknesses, control activities weaknesses and monitoring weaknesses. 1. Control environment– Management’s attitudes, awareness and actions concerning controls Management’s philosophy and operating style plays an important role in the Goodner case. Goodner’s executives advocate only one dominant theme to their sales staff: volume. Therefor the sales staffs in the Huntington unit only pay attention to the sales and lack of other important internal control. Further more, “indtead of an extensive system of internal controls, T.J. and Ross Goodner relied heavily on the honesty and integrity of the employees they hired.” Those policies put the company to control environment weakness. 2. Control activities (procedures)
The company has some huge control activities weakness, such as documentation issues. For example, “the sales reps often jotted the details of a transaction on a piece of scrap paper” other than put all the accounting related documents in to the computer on a timely basis. Also, the company lacks of physical control and performance review. “Other than padlocks, Goodner provided little security for its tire inventory, which typically ranged from $300,000 to $700,000 for each sales outlet”. The Huntington unit’s sale manager failed to do his work, ignored customer complains, and failed to catch Woody.
More important, the company lacks of segregation of duties. Such as, “A sales manager supervised the other employees at each and also worked a sales district.”, and “a receptionist who doubled as a secretary, a bookkeeper, and five to seven employees who delivered tires and worked in the unit’s inventory warehouse”. These weaknesses will open the company to a huge risk. 3. Monitoring
The company lacks of monitoring...
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