Question

The following are deficiencies in internal controls over cash. For each deficiency indicate what substantive audit procedure(s) should be performed to determine whether any material misstatements exist. Consider each deficiency independently of the others. While each deficiency poses potential problems, identify two that would heighten your professional skepticism the most and explain your rationale,

1. The person who opens the mail prepares the deposit when the cashier is not available.
2. If a customer does not submit a remittance advice with a payment, the mail clerk sometimes does not prepare one for the accounts receivable department.
3. Occasionally, the treasurer's department does not cancel the sup- porting documents for cash disbursements.
4. Customer correspondence concerning monthly statements is han- dled by the person who makes the bank deposits.
5. Bank reconciliations are not prepared on a timely basis. When prepared, they are prepared by the person who handles incoming mail.

Answer 1

a)

Weakness

In this case, the major weakness clearly can be seen and identified as the duties and responsibilities in the mailroom are insufficiently divided.

Audit Procedure

Expand client confirmations, pick a variety of normal transactions, and monitor reimbursement allowances for assets and accounts receivables.

b)

Weakness:

It is evident that remittance advice isn't prepared.

Audit Procedures:

Expand client confirmations, pick a variety of normal transactions, and monitor reimbursement allowances for assets.

c)

Weakness:

Back up evidence isn't canceled.

Audit Procedures:

Look for double payments. pertaining to Government Audit Standards could also be of assistance.

d)

Weakness:

Customer complaints aren't 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.

e)

Weakness:

Bank reconciliation isn't prepared on a daily basis and not handled independently by an individual.

Audit Procedures:

Prepare a reconciliation of the top 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 foremost possible answers are

(e) Essential work isn't done on a daily basis and not performed independently and

(d)Due to the danger of cash being stolen and withheld by the person having the wrong separation of duties by exploiting consumer communications with monthly reports.