Question

The following control procedures are used in Bunny's Boutique Shoppe for cash disbursements. (a) For each procedure, explain the weakness in internal control and identify the internal control principle that is violated. Procedure Weakness Principle Violated 1. Each week, 100 company checks are left in an unmarked envelope on a shelf behind the cash register. 2. The store manager personally approves all payments before she signs and issues checks. The store purchases used goods for resale from people that bring items to the store. Since that can occur anytime that the store is open all employees are authorized to purchase goods for resale by disbursing cash from the register. The purchase is documented by having the store employee write on a piece of paper a description of the item that was purchased and the amount that was paid. The employee then signs the paper and puts it in the register. 4. After payment, bills are "filed" in a paid invoice folder. 5. The company accountant prepares the bank reconciliation and reports any discrepancies to the owner.

Answer 1

	Procedure	Weakness	Principle Violated
1.	Each week 100 company checks are left in an unmarked envelope .................	The checks are not kept in a secure place.	Physical Controls
2.	The store manager personally approves..............	The approval and payment of invoices are done by the same person.	Segregation of Duties
3.	The store purchases used goods for resale ..........	Unauthorized employees can make purchases	Establishment of Responsibility
4.	After payment, the billls are filed in a paid invoice folder	Filing does not prevent duplicate payment of the same bill.	Documentation Procedures
5.	The company accountant prepares the bank reconciliation and reports any discrepancies to the owner	The accountant prepares the bank reconciliation. It is not independently prepared.	Independent Internal Verification