Internal Control Systems
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One of the weaknesses at Idaho Company is lack of establishment of responsibilities. Both the purchasing agent and the treasurer are authorized to issue checks. This is a weakness because; the roles of a purchasing agent should be different from the roles of a treasurer. A good cash control system over cash disbursement should not have different individuals from different departments having the authority of issuing checks. In fact, an individual who has the responsibility of approving purchases should not have the authority to issuing checks. This is because; he/she can easily manipulate the check figure by changing the invoice items or their prices.
Another weakness present at Idaho Company is lack of physical control in handling blank checks. Unnumbered and blank checks are kept in unlocked file cabinet. This is risky because any of the employees can access the blank checks, hence increasing the probability of forging checks by the employees.
As a recommendation, Idaho Company should consider establishing specific responsibilities to the purchasing agent and the treasurer. Both of them should not have the same authority. For instance, the treasurer should be responsible of signing of the checks, while the purchasing agent should be responsible of approving the invoices before they are sent to the treasurer. Additionally, Idaho Company should consider introducing pre-numbered checks, which should be stored in lockable safes. One individual should handle the key for unlocking the safe.
Internal control principles present at Guard Dog Company include establishment of responsibilities, independent internal verification, and physical and mechanical control of assets. To begin with, all employees at Guard Dog Company have been assigned specific responsibilities concerning cash disbursement. The purchasing agent and receiving department supervisor have a responsibility of ensuring invoice items are properly recorded. The responsibility of issuing and signing checks is vested in the treasurer and the assistant treasurer. The responsibility of the accounting department is to record paid invoices.
In reference to physical controls, Guard Dog Company has a lockable safe, where blank checks are stored. Only the treasurer and the assistant treasurer know the combination to the safe. The custody of blank checks is also assigned to a specific person, to ensure limited access of the checks by the organizational employees. Guard Dog Company also applies mechanical controls in printing of checks. From the case, it is indicated that the company recently acquired a check writer, which is used to print check numbers and amounts. Usually, a check writer uses indelible ink. This prevents possible alteration of check amounts or numbers by unscrupulous individuals. Use of pre-numbered checks allows easy retrieval of check transactions, since check numbers are recorded on the invoices and in the books of accounts maintained by the accounting department.
Moreover, Guard Dog Company applies independent internal verification in cash disbursement. Before a check is prepared, the purchasing and receiving departments verifies and approves the amounts recorded in the invoices. Similarly, before the treasurer or the assistant treasurer signs a check, he/she verifies if the amount recorded on the invoices is consistent with the check amounts. Other principles of internal control present at Guard Dog Company include stamping of invoices.
In this scenario, one of the weaknesses observed in the church’s internal accounting control system is lack of physical and mechanical controls. Offerings are made on open plates, which are then carried by volunteer ushers to a basement office in the church’s premises. This is a weakness since the ushers can take some of the money collected from the open plates. Another weakness is that the church lacks establishment of responsibilities. In the scenario, it is indicated that ushers who volunteer to undertake the responsibility for one-month collect offerings. This means that the church does not have a specific person or a group of persons whose responsibility is to collect offering. Moreover, there are no documentation procedures for the church’s collections. The only available documentation is the weekly notation made by the head usher indicating the amount collected.
The church can improve its internal control procedures by adopting the principles of internal control over cash receipts. The church can achieve this is by appointing specific ushers, whose main responsibility will be to collect offerings. Other ushers should be allocated other duties in the church. Therefore, the church should not work with volunteer ushers in collection of offerings. They should be specific and permanent. Instead of having the offerings collected from open plates, the church can introduce lockable safes, which will only allow addition of money either in coins or in notes, but will not allow removal of the money unless when opened. The head usher should also be specific and should be the only person with the keys to the collection safes.
After collection of offering, the head usher should lead other ushers to the basement room, where the offering is stored. He/she should access the safes, count the collection, and then combine the money in a different safe. Counting of the offering by the head usher should be done in the presence of the financial secretary. Only the financial secretary should hold the key or the combination of the safe where the total of the weekly offerings are kept. The financial secretary should also bank the takings of the offerings in the presence of one of the members of finance committee. Moreover, the financial secretary should maintain a collection record where the total weekly offerings, cash withheld, and the net amount of the offerings taken to the bank should be recorded.
On the other hand, the financial committee should take the responsibility of determining the amount to be withheld from the weekly offerings. They should also take the responsibility of determining how the money withheld should be utilized. This will ensure that the financial secretary is relieved off the duties of emptying, recounting, withholding, and banking the collection. Finally, the church should change its policy of having the church members volunteer in undertaking responsibilities, which involve handling of cash. It would be better if the church hires individuals who have the knowledge of handling and disbursing cash, and maintaining cash records.
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