Question

The following are deficiencies in internal controls over cash.

1. When the cashier isn’t available, Sally prepares both the deposit and opens the mail.

2. The mail clerk may not prepare a remittance advice for the A/R department if a customer does not submit a one with a payment.

3. Sometimes, the treasurer’s department does not stop the supporting documents for cash disbursements.

4. Ben handles both the customer correspondence concerning monthly statements and making the bank deposits.

5. Sam handles incoming mail and also prepares bank reconciliations; however, the bank reconciliations are not done in a timely manner.

For each deficiency:

*Determine what applicable audit procedure(s) should be conducted to identify whether any material misstatements exist.

*Explain why you think this procedure is best for this situation. Consider each deficiency independently of the others.

*While each deficiency presents potential issues, identify two that stand out as the worse with your professional knowledge. Explain your rationale. Also, how would you implement a change to improve those deficiencies?

Answer 1

Case 1

Weakness

The duties in the mailroom are insufficiently divided.

Audit Procedures:

Expand client confirmations, pick a range of regular transactions and monitor reimbursement allowances for accounts receivable.

Case 2

Weakness:

It is evident that remittance advise is not prepared.

Audit Procedures:

Expand client confirmations, pick a range of regular transactions and monitor reimbursement allowances for accounts receivable.

Case 3

Weakness:

Back up evidence is not cancelled.

Audit Procedures:

Look for double payments. Referring Government Audit Standards may be of assistance.

Case 4

Weakness:

Customer complaints are not divided appropriately among the staff.

Audit Procedures:

Extending analysis of recent collections and tracking of prior uncollected statements through direct communication with the established consumers and/or addressing collectability with management.

Case 5

Weakness:

Bank reconciliation is not prepared on a regular basis and not handled independently by a person.

Audit Procedures:

Prepare a reconciliation of the end of the year using the customer financial statements and a bank cutoff statement. Get confirmations from various sources .

Two deficiencies that stand out:

Two of the most possible answers are

(e) Essential work is not done on a regular basis and not performed independently and

(d)Due to the risk of money being stolen and withheld by the person having incorrect separation of duties by exploiting consumer communications with monthly reports.