Question B2 (10 marks)

The Fine Art Society operates a not-for-profit art gallery for the benefit of the community. During the hours when the gallery is open to the public, a clerk is positioned at the main entrance to sell $5.00 admission tickets. The two-part tickets are pre-printed and prenumbered. Upon payment of the admission fee, the patron is allowed to pass through a turnstile that is equipped with a counter.

There is a separate turnstile (also equipped with a counter) set up for members of the society that is operational only when the bar-coded membership card is scanned. Members of the society are permitted to enter free of charge by scanning their membership card. Based on frequency of usage, a members list is prepared for use by the Society as a source of target lists for special campaigns and volunteering opportunities.

Each member is asked to prepare a contribution pledge card on an annual basis (at the beginning of the year) to keep their membership active. The pledge is regarded as a commitment by the member to contribute the amount pledged by December of that year.

Contributions are sent by members in the mail or in a drop box located on-site. Upon request, based on the amounts shown on the pledge cards, the treasurer prepares tax receipts for members to support the contribution amounts.

At the end of the day, the clerk counts the cash received and prepares a two-part "daily receipts form" that shows the date, amount received, and the clerks signature. Any contributions received for pledges are also recorded at this time. The original is placed with the cash in a safe in the office, while part two is sent to the treasurers home.

Every morning, the treasurer an unpaid volunteer and board member visits the gallery, obtains the cash receipts from the safe, counts the cash and compares it to his copies of the receipt forms, and prepares the bank deposit. The clerk is responsible for maintaining the cash receipts journal, which is basically a record of the bank deposits.

All disbursements are made by cheques that require the dual signatures of the president and the treasurer. The treasurer is responsible for maintaining the disbursements journal (cheque register). The treasurer also reconciles the societys bank account each month.

You are the internal auditor of Fine Art Society. At a recent meeting, several board members expressed interest in learning about the societys internal control procedures. They asked you to identify any weaknesses in the internal control system and make suggestions to improve controls.

Required

1. List three weaknesses in the existing system of internal control. For each weakness, state the impact to the society if the control is not improved, and recommend improvements. Format your answer as follows: (9 marks)

Weakness	Impact	Recommended Improvement

2. What is your overall conclusion of the internal controls at the Fine Art Society. (1 mark)

3. The control risk is assessed at the maximum at the Fine Art Society. (1 mark)