At Reyes Company, checks are not prenumbered because both the purchasing agent and the treasurer are authorized to issue checks. Each signer has access to unissued checks kept in an unlocked file cabinet. The purchasing agent pays all bills pertaining to goods purchased for resale. Prior to payment, the purchasing agent determines that the goods have been received and verifies the mathematical accuracy of the vendor's invoice. After payment, the invoice is filed by vendor and the purchasing agent records the payment in the cash disbursements journal. The treasurer pays all other bills following approval by authorized employees. After payment, the treasurer stamps all bills "paid," files them by payment date, and records the checks in the cash disbursements journal. Reyes Company maintains one checking account that is reconciled by the treasurer.

Instructions (a) List the weaknesses in internal control over cash disbursements. (b) Identify improvements for correcting these weaknesses.

The internal control procedures in Philips Company make the following provisions. Identify the principles of internal control that are being followed in each case.

1. Employees who have physical custody of assets do not have access to the accounting records.

2. Each month the assets on hand are compared to the accounting records by an internal auditor.

3. A prenumbered shipping document is prepared for each shipment of goods to customers.

4. All over-the-counter receipts are registered on cash registers.

5. All cashier are bonded.

6. Daily cash counts are made by Cashier department supervisors.

7. The Duties of receiving cash, recording cash, and having custody of cash are assigned to different individuals.

8. Only Cashier may operate cash registers.

9. Company checks are prenumbered.

10. The bank statement is reconciled monthly by an internal auditor.

11. Blank checks are stored in a safe in the treasurer's office.

12. Only the treasurer or assistant treasurer may sign checks.

13. Checks signers are not allowed to record cash disbursment transactions.

14. Cashiers are bonded.

15. General Ledgers are reconciled against it Subsidiary Ledgers on a monthly basis.

Identify which control activity is violated in each of the following situations and explain how the situation creates an oppurtunity for fraud or inappropriate accounting practices.

1. Once a month, the sales department sends sales invoices to the accounting department to be recorded.

2. Greg Mursky orders merchandize for Ross Company; he also receives merchandize and authorizes payment for merchandize.

3. Several clerks at Terando's Grocery use the same cash register drawer.

4. Disbursement Vouchers (DVs) supported by reproduced copy of pertinent documents were presented during DVs processing.

5. Cash collections made by the cashier were deposited every other day instead of next working day as a matter of policy.