Question

Richard Palm is the accounting clerk of Olive Limited. He uses the source documents such as purchase orders, sales invoices and suppliers’ invoices to prepare journal vouchers for general ledger entries. Each day he posts the journal vouchers to the general ledger and the related subsidiary ledgers. At the end of each month, he reconciles the subsidiary accounts to their control accounts in the general ledger to ensure they balance. Discuss the internal control weaknesses and risks associated with the above process.

Answer 1

InternalControl:

Consider the case of El Manufacturing Company in which an employee L E is responsible for preparing the journal vouchers to be used for general ledger entries. But there are certain control weaknesses and problems in this scenario.

The task of updating the general ledger must be separate from all the accounting and asset custody responsibilities within the organization.

In the instant case, L is responsible for everything from preparing the Journal Voucher to posting it to the respective ledgers.

The potential control weakness in such a scenario is as follows:

• No Segregation of duty

• Too much reliance on individual

• Data integrity and confidentiality if any is questionable

• Chances of error is high

In such a scenario, to compensate for the potential risk, the system should be built to provide end-users and GL departments with a detailed listing of journal vouchers and account activity reports.