Case6-6 Tan KentLimmuel

Kent Limmuel B. Tan

2010-44012

(Orbits: To be reported by the group in the class) Green Mountain Coffee Roasters, Inc. - Internal Control Weaknesses

Green Mountain Coffee Roasters, Inc. was founded in 1981 and began as a small café in Waitsfield, Vermont, roasting and serving premium coffee on its premises. As task to review Green Mountain’s internal controls over its payroll and fixed asset procedures, the following are the weaknesses of the company’s systems (as modeled according t the six physical control activities specified in the SAS 78/COSO control model): Internal Control Transaction Authorization

Payroll System 

Fixed Asset System

The payroll department relies 

It should be determined if

on the hard-copy time cards

the fixed asset to be

being sent to them by the

acquired is of high-value

supervisor in processing

or not because there

paychecks. There should be a

should be an independent

validation as to the existence

approval process to

of the employees named in

evaluate the request on a

the time cards. (There could

cost-benefit basis.

be the presence of “ghost employees”) Segregation of duties



It is the supervisor who



The AP department,

sends the hard-copy time

responsible for setting up

cards to the payroll

the liability account for

department and at the same

purchased assets, is also

time responsible in

the one that acknowledges

reviewing and distributing

and verifies the goods

employee paychecks. Time-

delivered.

keeping and personnel

The user department

functions should be

manager handle the asset

separated. (With this, the

maintenance and disposal.

supervisor can possibly make

There should be another

use of the process to commit

department to handle this

fraud especially on sending

process.

time cards of inexistent







The AP clerk should not

employees and embezzling

be the one updating the

some of the paychecks).

appropriate fixed asset

The AP department should

inventory accounts.

not be writing checks. They should authorize cash disbursements to do so.



Supervision

Since the manager has the sole responsibility for the requisition, maintenance and disposal of the fixed assets, it is more susceptible to misappropriation.

Accounting Records



There should be a journal information/journal record of the cash disbursement

Access Controls



The access of the supervisor of the time cards and employees paychecks can be prone to misrepresentations on the employees’ name, the number of hours worked and thus embezzle the cash.

Independent Verification





The company has no



There should be an

independent paymaster to

internal auditor who

distribute the checks and

would periodically review

would verify the existence of

the acquisition and

the employees. ( The

approval procedures. The

supervisor being responsible

calculations of

for the process can be a party

depreciation of fixed

to a payroll fraud)

assets and approval of

The AP clerk must verify the

asset disposal for retired

accuracy of the payroll

assets should also be

register before creating a

reviewed since it is in sole

disbursement voucher

discretion of the user department managers.