Question

The following description represents the policies and procedures for agent expense reimbursements at Excel Insurance Company.

Agents submit a completed expense reimbursement form to their branch manager at the end of each week. The branch manager reviews the expense report to determine whether the claimed expenses are reimbursable based on the company’s expense reimbursement policy and reasonableness of amount. The company’s policy manual states that agents are to document any questionable expense item and that the branch manager must approve in advance expenditures exceeding $500.

After the expenses are approved, the branch manager sends the expense report to the home office.There, accounting records the transaction, and cash disbursements prepares the expense reimbursement check. Cash disbursements sends the expense reimbursement checks to the branch manager, who distributes them to the agents.

To receive cash advances for anticipated expenses, agents must complete a Cash Advance Approval form. The branch manager reviews and approves the Cash Advance Approval form and sends a copy to accounting and another to the agent. The agent submits the copy of the Cash Advance Approval form to the branch office cashier to obtain the cash advance.

At the end of each month, internal audit at the home office reconciles the expense reimbursements. It adds the total dollar amounts on the expense reports from each branch, subtracts the sum of the dollar totals on each branch’s Cash Advance Approval form, and compares the net amount to the sum of the expense reimbursement checks issued to agents. Internal audit investigates any differences.

Identify the internal control strengths and weaknesses in Excel’s expense reimbursement process.

Look for authorization, recording, safeguarding, and reconciliation strengths and weaknesses.

Answer 1

Accounting Information Systems Strengths Weaknesses Authorization Excel has a formal statement of policies | There is no limit on the agent's total and procedures for agent reimbursements. weekly expenditures or cash advances Expense reports must be approved by the Branch Manager prior to payment Expense reimbursement checks are sent to the Branch Manager for distribution rather than to the agent. This allows the Branch Manager to submit a fictitious expense reimbursement for a former agent or one on vacation and then cash the check Recording Accounting receives approved expense reports and cash advance forms. This The Branch Manager does not retain a cony of expense reports or cash 2 TSI

Recording Accounting receives approved expense reports and cash advance forms. This facilitates the correct recording of all authorized transactions. The Branch Manager does not retain a copy of expense reports or cash advances for audit purposes The expense report is not checked for mathematical accuracy Safeguarding Expense reimbursement checks are issued A copy of the Cash Advance Approval by the cash disbursements department form should be sent to the Branch Office Cashier so it can compare it with the one submitted by the agent, Cash disbursements are made only after Supporting documentation is not receipt of an approved expense report or required for all expenditures. Cash Advance Approval form

Reconciliation Internal Audit compares reimbursement checks with expense report totals less cash advances in the home office. There is no reconciliation of Branch Office Cashier disbursements with Cash Advance Approval forms. Reconciliation differences are investigated.