Internal Control Issues: Shredding Paychecks, Bank Reconciliation Problems, And Human Resource Matters

Abstract

Shortly after placing the administrative assistant (AA) on leave for excessive unreported absences and poor work, Dr. Peters, the MBA Director at a large regional university, discovered 98 pay envelopes.  These were made out to former graduate students and stuffed into a drawer of the AA’s desk.  The pay envelopes were given to Human Resources (HR), where they were shredded.  Subsequently, two more checks - for reimbursements of program expenses - were also found.  The internal auditor of the University was notified.  When the AA was searching for her next position within the University, the Dean of Business, who had hiring authority over the AA, gave her a positive recommendation.  The AA handled all student organization funds in that position; she was subsequently suspended.

The case focuses attention on internal control issues regarding bank reconciliations and following up on outstanding checks.  Also, the matter of HR shredding the pay envelopes is an issue to be considered.  The human resource issues surrounding the positive recommendation that the AA received is also discussed.  The various matters presented in this case fit into the components of the COSO model of internal control.