Question

The following control procedures are used at Torres Company for over-the-counter cash receipts.

(a)		For each procedure, explain the weakness in internal control, and identify the control principle that is violated.
(b)		For each weakness, suggest a change in procedure that will result in good internal control.

1.		To minimize the risk of robbery, cash in excess of $100 is stored in an unlocked briefcase in the stock room until it is deposited in the bank.
		(a)		Weakness:
				Principle:
		(b)		Recommended Change:
2.		All over-the-counter receipts are processed by three clerks who use a cash register with a single cash drawer.
		(a)		Weakness:
				Principle:
		(b)		Recommended Change:
3.		The company accountant makes the bank deposit and then records the day’s receipts.
		(a)		Weakness:
				Principle:
		(b)		Recommended Change:
4.		At the end of each day, the total receipts are counted by the cashier on duty and reconciled to the cash register total.
		(a)		Weakness:
				Principle:
		(b)		Recommended Change:
5.		Cashiers are experienced; they are not bonded.
		(a)		Weakness:
				Principle:
		(b)		Recommended Change:

Answer 1

1	To minimize the risk of robbery, cash in excess of $100 is stored in an unlocked briefcase in the stock room until it is deposited in the bank.
	(a)	Weakness: Cash is not safeguarded properly, it is kept in a unlocked briefcase and left it in a stock room where most people have access to, making it susceptible to theft.
		Principle: Safeguarding of assets is violated, As cash assets are not secured properly from thefts.
	(b)	Recommended Change: Lock cash in a secure location like a safe or locked storage facility. Provide the combinations,passwords or keys to unlock the safe box only to authorized personnel.
2	All over-the-counter receipts are processed by three clerks who use a cash register with a single cash drawer.
	(a)	Weakness: There is no independent handling of cash receipts, all 3 clerks process the cash receipts, cash register and cash drawers. No responsibility assigned properly
		Principle: Assigning specific duties to each employee
	(b)	Recommended Change: Instead of all 3 clerks, processing cash receipts, cash register and cash drawers. Each activities should be separately assigned to each individual and should be rotational. Thereby,No single person have control over all cash receipts
3	The company accountant makes the bank deposit and then records the day’s receipts.
	(a)	Weakness: Accountant who deposit the cash in bank is also recording cash receipts in register thereby making it susceptible for cash embezzlement by accountant, as he is only person who is receiving and also recording the cash in system.
		Principle: Segregation of duties is violated
	(b)	Recommended Change: Segregation of duties in the handling of cash is one of the most effective ways to gain control over this asset. No individual is to have complete control in the handling of cash. Accountant should only be assigned recording of cash receipts, depositing cash in bank should be made by other staff like cashier.
4	At the end of each day, the total receipts are counted by the cashier on duty and reconciled to the cash register total.
	(a)	Weakness: Cash is not independently counted. just like no segregation of duties, cash is counted and reconciled by same person.
		Principle: Segregation of duties and Independent verification of assets is violated
	(b)	Recommended Change: Cashiers can count the the total receipts but other staff member should be assigned to reconcile the deposit slip or cash counts to the cash register. A balance and summary of all cash receipts is prepared daily. Any shortages or overages are carefully investigated and, to the extent possible, corrected.
5	Cashiers are experienced; they are not bonded.
	(a)	Weakness: Cashiers are not bonded. The risk of theft would not be covered when the cashiers is not bonded.
		Principle: Human resources controls
	(b)	Recommended Change: All cashiers should be bonded.