Question

In: Accounting

The city of Laurelville recently opened a private parking lot in its downtown area for the...

The city of Laurelville recently opened a private parking lot in its downtown area for the benefit of city residents. A guard has been hired to patrol the lot and to issue numbered parking stickers to residents submitting an application form and showing evidence of residency. Once a resident has a sticker, they may park in the lot for 12 hours for $1. The guard inspects for stickers on all parked cars, as well as the meter time gauges to see that all fees have been paid. The complete application forms are maintained in the guard's office.

By using a master key, the guard takes coins from the meters weekly and places them in a locked collection box. The guard delivers the box to the city storage department, where a clerk opens it, manually counts the coins, puts the cash in a safe, and records the total on a weekly cash report. This report is sent to the city's accounting department. The day following the cash count, the city treasure's office picks up the cash and manually recounts it, prepares a deposit slip, and makes the deposit at the bank. The deposit slip, authenticated by a bank teller, is sent to the accounting department, where it is filed with the corresponding cash report.

Required: Decribe weaknesses in this system and recommend improvements to strengthen the control procedures.

Solutions

Expert Solution

The given problem requires identifying some weaknesses and recommendations to improve those weaknesses to strengthen the control procedures for the parking lot run by city of Laurelville for its residents.

We can notice that the facility is only for residents of the city and adequate procedure is there to establish the identity of residents by evidencing the proofs of residency so it is good. Now guard inspect for the stickers which the provided for the vehicles this exercise of inspecting parked vehicles is not so effective, inspection should be at the time of entrance of vehicle at parking lot by guard it will establish that no eligible vehicle get entered in parking lot and the load of inspecting for every vehicle in parked status will get lighter by this.

Again there is a fees of $1 for per 12 hours for parking and guard is also has liability to inspect meter gauge for every vehicle for checking that all fees have been paid for improvement in this system the guard should issue a slip in counter parts containing the information about vehicle identity and time of entrance, this step will serve many purposes one the identity of vehicle will be established second the entrance time of vehicle will be recorded end at the exit the release time of vehicle can also be recorded for the vehicle, by this a audit trail will be there for the transactions.

There is no record keeping at parking lot for the parked lot, by applying the system of above of issuing parking slip the guard will be in a position to maintain the record of parked vehicles and collection able amount. This report can be prepared by the guard by weekly because guard collect the coins weekly this report will enable guard to match the collection from meters with collection able amount shown by his record. This will establish a control measure in the system to match due amount and collected amount.

In the present system guard places the collected amount in a locked box and delivered them to city storage department where a clerk open that box and count. In this system no record is available that how much amount guard delivered in box and this is a massive weakness of the system and total controls relies upon the lock box taking the assumptions of zero man error and absence of audit trail. So by the system we adopted above the guard will delivered the lock box along with a receipt of amount in box matching with his own office record and this will establish strong internal control in the system and one’ work will checked by another in a automatic manner and will establish a audit trail with record. Now the storage department will send the cash along with a receipts duly signed by the treasure office, it will establish the control between the treasure office and storage office which is lacked in present system. In the present system the deposit slip is retained by accounting office this is lacked the record of delivering cash to bank at treasury office, so establish control the back slips should be retained by treasury office which physically depositing the cash in bank and should issue its own document to account office and account office also has bank statement to match the cash deposited so deposit slips should be retained by treasury office.

In addition to above suggested controls in present system there is an necessity to remove some steps from the system so that the audit trail could be short as the cash deposit work can be done by storage department or accounting department so the procedure can be shorten. In the present system the cash is moving from one to other place un necessary in spite of that the guard itself may deposit the cash directly into th bank and send the record to the required offices.    

So Above write up tells about the weaknesses in the present system and suggest some improvement measures to strength the control procedures in the system.


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