Question

23-24For the following situations, state whether it represents a strength or weakness in internal control and give the reason for your answer. 23. The bookkeeper opens the mail, makes the deposit, and makes the journal entries to record receipt of the cash and checks. 24. The movie theater has the following policy. Tickets are sold by the cashier. The ticket stubs are collected by the ticket taker. The ticket stubs are stored in a locked box, and the accounting personnel match the number of ticket stubs to the number of tickets sold.

Answer 1

23. This represents a weakness in internal control. The person opening the mail should be a person different from the accounts receivable book keeper who is making accounting entries in the system. Further the accounts receivable bookkeeper should be restricted from access to remittances received to be deposited. There is inadequate segregation of duties which may lead to frauds. The same person having access to remittances making deposits and also passing entries in the system represents serious weakness in internal controls.

24. This represents strong internal controls. The cashier is selling tickets and collecting cash, however the ticket stubs is being maintained independently by another person I.e. ticket taker. Thus the cashier is not in a position to manipulate the sales or cash as the same can be reconciled with the help of ticket stubs. Further, the ticket stubs are being stored securely.

The reconciliation of the ticket stubs to the number of tickets sold is performed by another team, I.e. accounting personnel so there is adequate segregation of duties and the possibility of fraud is reduced considerably in this case.