Question 10 of 18 3.33/5 ili (a) (b) For each procedure, explain the weakness in internal control and identify the internal control principle that is violated For each weakness, suggest a change in the procedure that will result in good internal control. 1. Company checks are stored in an unmarked envelope on a shelf behind the cash register. (a) Weakness: Checks are not stored in a secure area. Principle: Physical Controls. (b) Recommended Change: 2. The store manager person Checks should be stored in a safe or locked file drawer. Checks should be prenumbered and subsequently accounted for. Someone with no other cash responsibilities should prepare the bank reconciliation Only employees granted authority should make purchases for the store. The store manager should approve bills for payment and the treasurer should sign and issue checks. Purchases should be paid with prenumbered checks and the purchases should be documented by a prenumbered invoice signed by the Bills should be stamped PAID after payment. (a) Weakness: The store purchases used goods for resale from people that bring items to the store. Since that can occur anytime that the store is authorized to purchase goods for resale by disbursing cash from the register. The purchase is documented by having the store empl paper a description of the item that was purchased and the amount that was paid. The employee then signs the paper and puts it in (a) Weakness: The approval and payment of bills is done by the same individual. Unauthorized employees making purchases. Principle: Segregation of Duties. 2 Establishment of Responsibility (b) Recommended Change: After payment, bills are "filed in a naid invoice folder that can occur any e is documented by ployee then signs th The store purchases used authorized to purchase go Use of cash instead of checks; no prenumbered invoices. Filing does not prevent a bill from being paid more than once. paper a description of the The bank reconciliation is not independently prepared. Checks are not prenumbered. Checks are not stored in a secure area. (a) Weakness: The approval and payment of bills is done by the same individual. Unauthorized employees making purchases. Unauthorized employees making purchases. Principle: Segregation of Duties. The store purchases used goods for resale from people that bring items to the store. Since that can occur anytime tha authorized to purchase goods for resale by disbursing cash from the register. The purchase is documented by having paper a description of the item that was purchased and the amount that was paid. The employee then signs the paper (a) Weakness: The approval and payment of bills is done by the same individual. Unauthorized employees making purchases. Principle: Segregation of Duties. Establishment of Responsibility. Physical Controls. Human Resource Controls. Documentation Procedures. Independent Internal Verification. (b) Recommended Change: After payment, bills are "filed" in a paid invoice folder. 5. The company accountant prepares the bank reconciliation and reports any discrepancies to the owner. (a) Weakness: The bank reconciliation is not independently prepared, Principle: Independent Internal Verification : (b) Recommended Change: Someone with no other cash responsibilities should prepare the bank reconcillation. Checks should be stored in a sal) or locked file drawer. Bills should be stamped PAID after payment. Checks should be prenumbered and subsequently accounted for. Purchases should be paid with prenumbered checks and the purchases should be documented by a prenumbered involce signed by the The store manager should approve bills for payment and the treasurer should sign and issue checks. Only employees granted authority should make purchases for the store. e Textbook and Media es used goods for resale from people that bring items to the store. Since that can occur anytime that the store is open, all employees chase goods for resale by disbursing cash from the register. The purchase is documented by having the store employee write on a pier in of the item that was purchased and the amount that was paid. The employee then signs the paper and puts it in the register. The approval and payment of bills is done by the same individual. Unauthorized employees making purchases. Segregation of Duties Establishment of Responsibility. nded ils are " The store manager should approve bills for payment and the treasurer should sign and issue checks. Someone with no other cash responsibilities should prepare the bank reconciliation Purchases should be paid with prenumbered checks and the purchases should be documented by a prenumbered invoice signed by the Bills should be stamped PAID after payment Checks should be prenumbered and subsequently accounted for. Checks should be stored in a safe or locked file drawer. Only employees granted authority should make purchases for the store. Documentation Procedures
