Question

At Leah Company, cheques are not prenumbered because both the purchasing agent and the
treasurer are authorized to issue cheques. Each signer has access to unissued cheques kept in an unlocked file
cabinet. The purchasing agent pays all bills pertaining to goods purchased for resale. Prior to payment, the

purchasing agent determines that the goods have been received and verifies the mathematical accuracy of
the vendor’s invoice. After payment, the invoice is filed by vendor, and the purchasing agent records the
payment in the cash disbursements journal. The treasurer pays all other bills following approval by
authorized employees. After payment, the treasurer stamps all bills PAID, files them by payment date, and
records the cheques in the cash disbursements journal. Leah Company maintains one checking account that is
reconciled by the treasurer.
Required:
(a) List the weaknesses in internal control over cash disbursements.
(b) Write a memo to the company treasurer indicating your recommendations for improvement.

Answer 1

Answer (a):-

There are the following weaknesses in the internal control over cash disbursements:-

1. Cheques are not pre-numbered, hence it is difficult to identify the no. of cheques issued for payment.
2. No. of signatures on cheque is always a debatable issue and at least there should be 2 signatures on cheque while here cheque can be issued by both i.e. Treasures and Purchasing Agent by single sign.
3. The unissued cheque i.e. may be after signature it should be kept is locked file cabinet while here we used to kept in unlock file cabinet.
4. Always one person making the payment for purchasing the goods can result into double payment or excess payment or payment without bill.
5. The payment made via cheque for purchasing the goods the paid bill along with copy of cheque should be print and kept in a file.
6. Reconciliation is possible for partial transactions only done by the treasurer.

Answer (b):-

Recommendations for improvement:-

1. Cheques should be pre-numbered.
2. The cheques should be kept in locked file cabinet.
3. Instead of one there should be at least 2 signatures for issue of cheque.
4. There should be one cheque register and all cheques issued should be recorded into that register.
5. There should be a voucher file for all the bills and cheque copy along with that related bill.
6. All the payments or bills should be approved by the authorized person before making the payment.
7. Signed cheque should be either kept in safe properly or mail to concerned party.
8. After payment all bills and invoices should be marked as paid.
9. Bank should be reconciled at a proper interval.