Question

ABC Child and Family Services is a large, non-profit agency that provides full-day child care
services to some of its Head Start and Early Head Start children. A combination of parent co-
pays, state child care reimbursements, and Head Start funds is used to cover the costs of the
full-day service. The agency spans a vast geographic area, but administrative services are
carried out from one centralized administration building. To make it easy for parents to pay for
their share of child care costs, the agency allows payments to be made on-site where their
children are served. Each of the 10 Head Start/child care centers is staffed with teachers,
assistant teachers, and a team leader. Parents pay their child care costs by check or money
order and occasionally with cash throughout the day to whomever is available when they drop

off their child. When cash is received, staff members send it to the central office at least
weekly through someone who is going by the office. Families are supposed to mail checks and
money orders to the central administrative office weekly, but invariably the central office staff
ends up contacting 10 parents a week (on average), seeking their child care payments. Often,
what is discovered is that a staff member has misplaced the checks or did not write a receipt of
payment, which is the policy. In one particular center, the team leader has had trouble
reconciling the center’s petty cash and came to realize that it’s because teachers are using
petty cash to make change when parents pay for child care with large denominations.

 What systems would you put into place to strengthen internal controls?

1. Define the problem/control issue
2. State why it's a problem/what could go wrong because of the issue
3. Classify the issue as control deficiency, significant deficiency, or material weakness based on the magnitude and likelihood of failure or potential failure
4. State whether it is a design deficiency or an operating deficiency based on how the control failed/how it could potentially fail
5. Make a recommendation to fix the issue
6. State how your recommendation will benefit the client/fix the problem.

Answer 1

1.The problem here is the lack of integration between head office and its branches because collection takes at one place and if it not properly acccounted then it results in the parents reporting to head office.

2.If this issue is not properly addressed then it may result in a financial loss to the company as there are no controls of tracing where the money has lost and it will lead to litigation in court of law.

3.It is control deficency and the likely hood ocuurence of the problem is very high in future.

4. If is both a design deficency and operating efficency as there is no communication between the head office and it branches on a daily basis leading to the problem in tallying of the receipts.

5.The suggestion to fix the issue is that the communication should flow on daily basis regarding the fees receipts from the branches to the head offices with the name of the parents remitting the fees and the parents should be issued fees receipts challan from the branch office regarding the proof and if possible cash receipts to be avoided and the same can be deposited in comapny bank account. Instead of sending the fees on a weekly basis through some one who is going to the head office the amount should be deposited in the bank account on a daily basis and for petty cash expenses by the teacher there should be seperate petty cash account which should be reimbursed from the head office on a weekly basis and the fees receipts should not be touched for these petty cash expenses.

6.. This will benefit the organisation in fixing the issue as the accounting takes place then and there and there is propere flow of information from branches to head office and vice verss the cash deposited in daily basis will help the organsiaton manage the cashflows.