Question

Problem 1. The following control procedures are used at Feliz Company for over-the-counter cash receipts.

1. All over-the-counter receipts are registered by four clerks who use a cash register with a single cash drawer (till).

2. To minimize the risk of robbery, cash in excess of $200 is stored in an unlocked drawer in a desk in the back room.

3. Each clerk counts his/her own receipts at the end of the day and reconciles that amount to the cash register total.

4. A bookkeeper prepares a journal entry to record the day's cash receipts, then deposits the receipts in the bank.

5. To save funds, cashiers do not get vacation days.

Instructions

(a) For each procedure, explain the weakness in internal control, and identify the control principle that is violated.

(b) For each weakness, suggest a change in procedure that will result in good internal control.

Answer 1

	(a)	(b)
Procedure	Weakness in internal control	Control principle which is violated	Recommended Change that will result in good internal control
1.	Failure to set up obligation regarding money with a particular clerk.	Establishment of responsibility.	There ought to be discrete money drawers and register codes for each clerk.
2.	Money isn't satisfactorily protected from theft.	Physical controls.	Money ought to be put away in a safe until it is kept in bank.

3.	Money isn't independently counted.	Independent internal verification.	A cashier office supervisor should tally money.
4.	The bookkeeper ought not to handle money.	Segregation of duties.	The cashier’s department should make the deposits.
5.	Cashiers do not take vacations.	Human resource controls.	All cashiers should either take vacations or be rotated to different positions and shifts.