Every year, Jessica Gomez, CEO of Logan Construction Company, takes a two week vacation to Barbados and signs multiple blank checks to pay for any major bills that come due while she is away. Jessica's vacation occurs towards the end of Logan's fiscal year. Carl Johnson, controller for the company, uses this practice for his gain. He identifies a very large invoice from a vendor, makes out a check to himself for that amount, and records it as a payment to the vendor for acquisition of supplies. He holds the check for several weeks to ensure the auditors will not review the canceled check. Not long after the first of the year, Johnson resubmits the invoice to Gomez for approval and records the check in the cash disbursements journal. Johnson then marks the invoice as paid and files away with other paid invoices. Johnson has been performing this activity many years and believes he has no risk of getting caught.
There are so many opportunities for improvement in the internal controls in this scenario. With an unlimited amount of funds, many people, and an unlimited time frame, a company could virtually eliminate all control risk. Practically speaking, though, that is not feasible for 95%+ of all companies. Small companies like Logan Construction especially struggle with control risk in the areas of acquisition and financing because they operate with minimal staffing, restrictive budgets, and a remote workforce.
If you were consulting with Logan Construction on internal control improvement opportunities, provide two short term suggestions for controls improvement, and one long term suggestion that the company might need to plan for financially or technologically.