Consider the following short case as you respond to the next question: SPC Corporation sells computer security software. They maintain their AIS using general ledger software; data files are backed up twice a day. Sales staff can access the customer database, inventory files and general ledger, as well as sales-related documents such as invoices and sales orders. Newly hired sales staff members at SPC receive the company procedures manual which explains the process used to complete the steps in the sales / collection process. To minimize costs, SPC designates up to five sales staff members each month who can do credit checks for all new customers in addition to processing sales. SPC bills its clients monthly and uses the balance forward method of accounting for receivables; all cash receipts from clients are processed using a lockbox procedure. The lockbox firm's fee is 3% of all collections. SPC's accounting department estimates bad debts at the end of each fiscal year; they are normally about 1% of total sales.Based on its risk exposures, SPC would benefit most from implementing which of the following internal controls?
A)Cross-training employees
B)Separation of duties
C)Normalized database files
D)Use of the COSO internal control framework

Question

Quizplus · Accepted Answer

Separation of duties is the most beneficial internal control for SPC Corporation as it will help to reduce the risk of fraud and errors in the sales/collection process. By designating up to five sales staff members each month to do credit checks for new customers, SPC is already implementing some separation of duties, but it could be strengthened by separating the tasks of processing sales orders and invoices, handling cash receipts, and performing credit checks among different employees. Cross-training employees and using normalized database files may be helpful for efficiency and accuracy, but will not address the risk exposure of fraud or errors. The use of the COSO internal control framework is a best practice for establishing an effective internal control system but it is not a specific control measure that can be implemented by SPC.

Consider the Following Short Case as You Respond to the Next