Question

This case is based on an actual situation. Centennial Construction Company, headquartered in Dallas, Texas, built a Rodeway Motel 35 miles north of Dallas. The construction foreman, whose name was Slim Chance, hired the 40 workers needed to complete the project. Slim had the construction workers fill out the necessary tax forms, and he sent their documents to the home office. Work on the motel began on April 1 and ended September 1. Each week,Slim filled out a time card of hours worked by each employee during the week. Slim faxed the time cards to the home office, which prepared the payroll checks on Friday morning. Slim drove to the home office on Friday, picked up the payroll checks, and returned to the construction site. At 5 p.m. on Friday, Slim distributed payroll checks to the workers.

Requirements

1. Describe in detail the main internal control weakness in this situation. Specify what negative result(s) could occur because of the internal control weakness.

2. Describe what you would do to correct the internal control weakness.

Short answer

Separation of duties is a type of internal control in which the company separates the responsibilities between two or more employees.

Step-by-step solution

Definition of the internal control

Internal control is a process by which the company can manage its internal activities.

Internal weakness

The main internal control weakness of the company is the separation of duties because Slim is the only person who manages everything from construction to the payroll check of the company. This will create many problems for the company. The main problem generated from this weakness is that there are chances of mistakes in the company’s payrolls.

Ways to correct weakness

To correct this weakness, the company has to assign the duty of a person that has charge of payroll checks. By this, the company can resolve the problem.