Question

Internal controls – cash The local swimming club wants to raise some money so that it can install a solar heating system at the local pool. The major fundraising event is a pool party - with live music, free BBQ, and amusements for children. Entry to the pool party is $20 per person, with tickets able to be pre-purchased at the swimming pool entry desk before the event, or people can pay $20 at the entry desk on the day of the festival. 2,000 unnumbered tickets were printed, and these were kept in a box at the swimming pool entry desk. As tickets were sold, the money was put into a locked money box kept at the entry desk. A number of swimming pool staff were responsible for organising the event. Each of these people had a key to the money box and were told that if they took money out to pay for event expenses, they need to put a note in the box saying how much they took and what it was used for. Ticket sales were going well, and the money box was getting quite full after three weeks. The swimming pool staff member who was on the entry desk at the pool that day counted the money, prepared the bank deposit slip and deposited the money into the new bank account that had been opened for the fundraising event. On the day before the pool party, unsold tickets were ripped up and disposed of – as they were no longer needed. (If people wanted to come to the pool party and hadn’t pre-purchased a ticket, they would just need to pay $20 entry at the pool entry desk.) On the day of the pool party, one of the swimming club members worked at the pool entry desk, collecting tickets from people attending the party and collected money from people who hadn’t pre-purchased them. As tickets were presented at reception, they were taken from the attendee, ripped up and disposed of. People attending the party were also able to purchase wrist-bands at the entry desk, for unlimited access to the amusements – for $5 per person. As wrist bands were sold, the money was added into the money box. At the end of the pool party, $500 was taken out of the money box and paid to the DJ. The DJ did not provide a receipt. It was estimated that 1,200 people attended the pool party, and there were approximately 200 children that had wrist-bands for the amusements. The following day, the fundraising event bank account was closed, which had $3,200 in it, and there was also $1,100 in the money box. The swimming club treasurer was surprised that the pool party had only netted $4,300 in cash. Required: Identify the internal control weaknesses in this scenario, and suggest how each could be corrected.

Answer 1

1. Access to cash should be given to limited employees. However, in this case, access was given to all the employees. The treasurer should have given the access to only one of the pool employees.

2. Any withdrawals from cash should be accompanied by proper authorization from supervisor or manager. However, there was only a note left specifying the reason; instead a proper documentation and authorisation for cash withdrawal should be present.

3. Cash receipts from customers should not be used for petty cash. So, instead of letting the staff withdraw money from the cash box for expenses, another specified pool of cash should have been provided for petty spends; so that there was a limit to petty expenses and the same could also be tallied later.

4. Separate duties should be given to different employees. One of the employees could be given the dity of receiving and withdrawing the cash and another of maintaining the records; which would firther be reconciled by another employee. By separating such duties, it ensures double-checks.

5. Documentation plays the most crucial role in case of cash managemet. When any payment was received, a unique identification number should have been given to that receipt and a register could have been maintained wherein the details of amount received against the sequential ticket number should be mentioned. This would ensure that the ticket numbers matches the cash amount and the auditor will be able to find if their is any discrepancy.

6. Further, the extra tickets which were unsold, should also have been kept by the management as unsold tickets. This would have ensured the auditor to calculate the cash received against sold tickets.

7. Reconciliation should have been performed at the end of each day. This would have ensured that the mistakes in cash keeping would be caught sooner and appropriate actions would have been taken.

8. Proper receipt for payment made to DJ for 500/- should have also been taken.

9. Sequentially numbered tickets should have been given to people who did not pre-purchae the entry ticket as well. This would again ensure the auditor to get the amount of cash received.

10. Proper invoice should be given to people who bought wrist bands as well.