Question

The following description represents the policies and procedures for agent expense reimbursements at Excel Insurance Company.

Agents submit a completed expense reimbursement form to their branch manager at the end of each week. The branch manager reviews the expense report to determine whether the claimed expenses are reimbursable based on the company’s expense reimbursement policy and reasonableness of amount. The company’s policy manual states that agents are to document any questionable expense item and that the branch manager must approve in advance expenditures exceeding $500.

After the expenses are approved, the branch manager sends the expense report to the home office. There, accounting records the transaction, and cash disbursements prepares the expense reimbursement check. Cash disbursements sends the expense reimbursement checks to the branch manager, who distributes them to the agents.

To receive cash advances for anticipated expenses, agents must complete a Cash Advance Approval form. The branch manager reviews and approves the Cash Advance Approval form and sends a copy to accounting and another to the agent. The agent submits the copy of the Cash Advance Approval form to the branch office cashier to obtain the cash advance.

At the end of each month, internal audit at the home office reconciles the expense reimbursements. It adds the total dollar amounts on the expense reports from each branch, subtracts the sum of the dollar totals on each branch’s Cash Advance Approval form, and compares the net amount to the sum of the expense reimbursement checks issued to agents. Internal audit investigates any differences.

Identify the internal control strengths and weaknesses in Excel’s expense reimbursement process. Look for authorization, recording, safeguarding, and reconciliation strengths and weaknesses.

Answer 1

Excel Insurance Company

Agent Expense Reimbursement Policy

Strengths

1. Agents are required to document for any questionable expense item.
2. Prior approval of branch manager is needed where the amount of expenditure exceeds $500.
3. All expenses are to be approved by the branch manager taking the company's policies and the reasonableness on the amount into consideration.
4. Accounting and Expense Reimbursement Checks are prepared at the Head Office Level, thus reducing manipulation in the books of accounts at the branch level.
5. Cash Advance is also made after the approal of the branch manager and the copy of the form is also sent to the head office for accounting which serves as documentation.

Weaknesses

1. All the powers of approval are soley vested in the hands of branch manager and if he himself is a fraudster entire profit center goes in vain.
2. Reasonableness of amount may vary among various expenses and needs judgement of the branch manager.
3. Expense reimbursement checks are cash disbursements and are sent to the branches which then distribute to the agents, branches may create dummy agent accounts as every through cash.
4. Internal Audit at home office should also consider each branch's cash advance approval forms accounted in the previous months to meet the expense of current month in reconciling the expense reimbursements.  

Suggestions

• Head Office should directly deposit in the bank accounts of the agents.
• Agent code should be created at the head office only after which he is able to transact with the branches.
• Data entry and attachement of documents can be made at the branches and the head office shall approve the entries after which the disbursement takes place through Head office.
• Cash book to be maintained at the branches which shall be approved by the branch manager after reconciling the same with the cash balance and the balance of cash in the books of accounts.
•   Security deposits may be taken from the agents to avoid risk in the advances given.
• Head office should check for the increase in the expenses with the trend of business.
• Head office should also check for the delay in accounting with the attachments attachhed therto to avoid misappropriation of funds.