1. You are auditing the financial statements of the Tana Hotel construction project sub-contracted by the Tikur Abay Construction Enterprises. The Tana hotel construction project is run by an independent contractor. You find all employees are paid in cash because Ato Tola -the contractor -believes this arrangement reduces clerical expenses and is preferred by the employees. During the audit you find in the petty cash fund an amount of approximately birr 300 of which birr 265 is stated to be unclaimed wages. Further investigation reveals that AtoTola has installed the procedures of putting any unclaimed wages in petty cash fund so that the cash can be used for disbursement. When the claimant to the wage appears, he is paid from the petty cash fund. Ato Tola contends that this procedures reduces the number of cheque drawn to replenish the petty cash fund and centers the responsibility for all cash on hand in one person in as much as the petty cash custodian distributes the pay envelopes.

Instruction:

I) Explain fully whether the system provides proper internal control over unclaimed wages and petty cash. Be specific.

II) As Ato Tola insists on paying salaries in cash, suggest specific procedures you recommend for better internal control over unclaimed wage and petty cash.

2. In the Ethiopian Metal works company all disbursements for amounts over Birr 50 are made by cheque. Each cheque on general cash requires the signature of Ato Samuel, Treasurer, plus counter signature of either Ato Fekade, president, or Ato Leikun, vice president. As latter two cheque signatories do considerable traveling, they frequently sign blank cheque when they expect to be away for a few days and leave them with Ato Samuel to be used as needed. Before signing a cheque, each of these three is supposed to examine carefully the voucher to be paid, which is always accompanied by the voucher's invoice approved for price, quantity, and extension, receiving report, and a copy of the purchase order, all properly approved and initialed. Each of the cheque signers is very conscious of the importance of internal control and assures you he does examine vouchers very carefully before signing cheques.

Instruction:

I) Describe briefly the most outstanding weakness you note in the internal control as described above, and outline the improvements you suggest to strengthen system.

3. In your examination of a medium sized restaurant you observe that all customers pay their cheque to a single cashier, who also prepares and makes daily banking deposits. she submits a copy of the deposit slip to the accountant, so that he can record the daily cash receipts.

Instructions:

I) Describe the weaknesses in internal control.

II) Describe in detail the audit procedure you need to apply in this case, uncover irregularities that could happen.