The following control procedures are used in Katja’s Boutique Shoppe for cash disbursements.
1. Each week, Katja leaves 100 company checks in an unmarked envelope on a shelf behind the cash register.
2. The store manager personally approves all payments before signing and issuing checks.
3. The company checks are unnumbered.
4. 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.
Instructions
(a) For each procedure, explain the weakness in internal control and identify the internal control principle that is violated.
(b) For each weakness, suggest a change in the procedure that will result in good internal control.