Cash Disbursements: Case Study
Scenario E4-5
A) List the weaknesses in internal control over cash disbursements.
1) Checks are not pre-numbered. When checks have no numbers, no one will know if a check is misplaced or stolen.
2) Too many people are authorized to sign checks. The treasurer should be the only person authorized.
3) Checks are not being kept in a safe area. A filing cabinet, even a locked one can be easily pried open and checks stolen.
4) Segregation of duties is not being done, the purchasing agent should not be paying the bills if he is ordering, receiving, and paying for these items.
5) There is a lack of documentation procedures. The treasurer pays all other bills after approval from authorized employees, there should be some documentation procedures …show more content…
set up.
6) After payment, the treasurer stamps the bills paid and files them by payment date. The bills and the invoice should also have the date, check number, and signature of the person writing the check.
7) If the treasurer is paying the bills, he or she should not be doing the reconciling also.
B) Write a memo indicating your recommendations for improving company procedures.
The following procedures should be implemented immediately in order for our company to have a better control of our internal control over cash disbursements. The following steps should be taken:
Establishment of Responsibility: Only the treasurer should be authorized to sign checks.
Segregation of Duties: The purchasing agent should not be ordering, receiving, and paying for goods. We need to set up a system in which the following will happen. The purchasing agent will order the goods. The inventory clerk will receive the merchandise and a bookkeeper will match the invoice with the job order, assign a check number. The treasurer will sign the checks.
Documentation, Independent Internal Verification and other controls. The lack of documentation procedures is worrisome. The following are the recommendations. o Start using pre-numbered checks in sequence. o The purchasing agent should fill out the appropriate purchase order. Filling in completely the vendor, date, quantity ordered and any other specific information. The purchase order should be filed in the receiving room in either alphabetical order of the vendor. o The inventory clerk will receive the merchandise, pull the purchase order, and verify the correct quantity and description was received. Once received the paperwork will be sent to bookkeeping. o Bookkeeping will verify the purchase order and the receiving documentation. Once the bill for this merchandise is received, the bookkeeper will match the bill, purchase order, and receiving ticket to ensure a match. She will assign a check and submit it to the treasurer. o The treasurer will verify the bill and invoice and stamp both paid along with the date, check number, and initials of person signing the check.
o Physical, Mechanical and Electronic controls: All checks will be stored in a safe with access given to the bookkeeper and treasurer. The checks should be printed or written with indelible ink.
Scenario P4-1A
A) Identify the internal control principles and their application to cash disbursements of Guard Dog Company
Documentation Procedures: Changed from having unnumbered and manually prepared checks to the company using prenumbered checks and a checkwriter purchased by the company.
Segregation of Duties: Different individuals have been assigned to handle verification of invoice and received goods.
Establishment of Responsibility: Only the treasurer and assistant treasurer are allowed to sign the checks.
Other controls: The signer of the check will stamp invoice paid along with the date, check number, and amount of the check.
Independent Internal Verification: The paid invoice is sent to accounting for recording.
Physical, Mechanical and Electronic Controls: Blank checks are kept in a safe in the treasurer’s office with only two people having the …show more content…
combination.
Independent Internal Verification: The bank statement
Scenario P4-2A
A) Indicate the weaknesses in internal accounting control in the handling of collections.
No audit has been conducted in 15 years.
When collections are taken down to the basement and handed to the head usher, no one stays with him to verify the count.
Once the count is made, the ushers put the cash in the safe. Ushers serve for a total of 3 months, which means a number of people could potentially have the combination to the safe.
The financial secretary opens the safe and counts the offerings. She withholds money for the following week but no documentation. If this is petty cash proper, record keeping needs to be done. Having church members make their checks out to cash could potentially lead to people cashing the checks fraudulently.
The bank secretary deposits the checks and reconciles the statement. Someone else should be involved with this.
B) List the improvements in internal control procedures that you plan to make at the next meeting of the audit team for (1) the ushers, (2) the head usher, (3) the financial secretary, and (4) the finance committee.
1. All the ushers need to go to the basement together and the usher should count his plate with the head usher. Cash and check should total each plate.
2. The head usher and another member of the finance committee should sign off on the total amount collected. Ushers will no longer have access to the safe due to
turnover.
3. The financial secretary will have the treasurer open the safe and together they will count the money. A petty cash fund will be set up to withhold money for expenditures. Church members will be instructed to make the checkout to church and not out as cash. The secretary will be required to take a vacation every year.
4. One person from the finance committee should be appointed treasurer and that person will be responsible for putting the money in the safe. The finance committee needs to have a yearly audit in place. They need to make sure the fidelity insurance is purchased.
C) What church policies should be changed to improve internal control?
The church places too much trust in the individuals. There are times when individuals are careless or in a hurry, and although there is a trust issue, it needs to be to everyone’s benefit. No one should be alone with cash; all offerings should be counted and verified by two people. Informing church members to make the checks out to the Church and not as cash, this prevents someone from cashing the check for themselves and not the church. Change who has access to the safe, as few people as possible should have access to the safe. Church members will be more comfortable contributing to the church when they feel safe knowing the money they are contributing is actually going to the church.
A) List the weaknesses in internal control over cash disbursements.
1) Checks are not pre-numbered. When checks have no numbers, no one will know if a check is misplaced or stolen.
2) Too many people are authorized to sign checks. The treasurer should be the only person authorized.
3) Checks are not being kept in a safe area. A filing cabinet, even a locked one can be easily pried open and checks stolen.
4) Segregation of duties is not being done, the purchasing agent should not be paying the bills if he is ordering, receiving, and paying for these items.
5) There is a lack of documentation procedures. The treasurer pays all other bills after approval from authorized employees, there should be some documentation procedures …show more content…
set up.
6) After payment, the treasurer stamps the bills paid and files them by payment date. The bills and the invoice should also have the date, check number, and signature of the person writing the check.
7) If the treasurer is paying the bills, he or she should not be doing the reconciling also.
B) Write a memo indicating your recommendations for improving company procedures.
The following procedures should be implemented immediately in order for our company to have a better control of our internal control over cash disbursements. The following steps should be taken:
Establishment of Responsibility: Only the treasurer should be authorized to sign checks.
Segregation of Duties: The purchasing agent should not be ordering, receiving, and paying for goods. We need to set up a system in which the following will happen. The purchasing agent will order the goods. The inventory clerk will receive the merchandise and a bookkeeper will match the invoice with the job order, assign a check number. The treasurer will sign the checks.
Documentation, Independent Internal Verification and other controls. The lack of documentation procedures is worrisome. The following are the recommendations. o Start using pre-numbered checks in sequence. o The purchasing agent should fill out the appropriate purchase order. Filling in completely the vendor, date, quantity ordered and any other specific information. The purchase order should be filed in the receiving room in either alphabetical order of the vendor. o The inventory clerk will receive the merchandise, pull the purchase order, and verify the correct quantity and description was received. Once received the paperwork will be sent to bookkeeping. o Bookkeeping will verify the purchase order and the receiving documentation. Once the bill for this merchandise is received, the bookkeeper will match the bill, purchase order, and receiving ticket to ensure a match. She will assign a check and submit it to the treasurer. o The treasurer will verify the bill and invoice and stamp both paid along with the date, check number, and initials of person signing the check.
o Physical, Mechanical and Electronic controls: All checks will be stored in a safe with access given to the bookkeeper and treasurer. The checks should be printed or written with indelible ink.
Scenario P4-1A
A) Identify the internal control principles and their application to cash disbursements of Guard Dog Company
Documentation Procedures: Changed from having unnumbered and manually prepared checks to the company using prenumbered checks and a checkwriter purchased by the company.
Segregation of Duties: Different individuals have been assigned to handle verification of invoice and received goods.
Establishment of Responsibility: Only the treasurer and assistant treasurer are allowed to sign the checks.
Other controls: The signer of the check will stamp invoice paid along with the date, check number, and amount of the check.
Independent Internal Verification: The paid invoice is sent to accounting for recording.
Physical, Mechanical and Electronic Controls: Blank checks are kept in a safe in the treasurer’s office with only two people having the …show more content…
combination.
Independent Internal Verification: The bank statement
Scenario P4-2A
A) Indicate the weaknesses in internal accounting control in the handling of collections.
No audit has been conducted in 15 years.
When collections are taken down to the basement and handed to the head usher, no one stays with him to verify the count.
Once the count is made, the ushers put the cash in the safe. Ushers serve for a total of 3 months, which means a number of people could potentially have the combination to the safe.
The financial secretary opens the safe and counts the offerings. She withholds money for the following week but no documentation. If this is petty cash proper, record keeping needs to be done. Having church members make their checks out to cash could potentially lead to people cashing the checks fraudulently.
The bank secretary deposits the checks and reconciles the statement. Someone else should be involved with this.
B) List the improvements in internal control procedures that you plan to make at the next meeting of the audit team for (1) the ushers, (2) the head usher, (3) the financial secretary, and (4) the finance committee.
1. All the ushers need to go to the basement together and the usher should count his plate with the head usher. Cash and check should total each plate.
2. The head usher and another member of the finance committee should sign off on the total amount collected. Ushers will no longer have access to the safe due to
turnover.
3. The financial secretary will have the treasurer open the safe and together they will count the money. A petty cash fund will be set up to withhold money for expenditures. Church members will be instructed to make the checkout to church and not out as cash. The secretary will be required to take a vacation every year.
4. One person from the finance committee should be appointed treasurer and that person will be responsible for putting the money in the safe. The finance committee needs to have a yearly audit in place. They need to make sure the fidelity insurance is purchased.
C) What church policies should be changed to improve internal control?
The church places too much trust in the individuals. There are times when individuals are careless or in a hurry, and although there is a trust issue, it needs to be to everyone’s benefit. No one should be alone with cash; all offerings should be counted and verified by two people. Informing church members to make the checks out to the Church and not as cash, this prevents someone from cashing the check for themselves and not the church. Change who has access to the safe, as few people as possible should have access to the safe. Church members will be more comfortable contributing to the church when they feel safe knowing the money they are contributing is actually going to the church.