Question

The following control procedures are used in Keaton Company for over-the-counter cash receipts.

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

Procedure

Weakness

Principle Violated

1.

Each store manager is responsible for interviewing applicants for cashier jobs. They are hired if they seem honest and trustworthy.

Select a weakness in internal control

Cash is not adequately protected from theftInability to establish responsibility for cash on a specific clerkThe accountant should not handle cashCashiers are not bonded and background checks are not conductedCash is not independently counted

Select a control principle that is violated

Establishment of responsibilityDocumentation proceduresIndependent internal verificationPhysical controlsSegregation of dutiesHuman resource controls

2.

All over-the-counter receipts are registered by three clerks who share a cash register with a single cash drawer.

Select a weakness in internal control

Cashiers are not bonded and background checks are not conductedThe accountant should not handle cashInability to establish responsibility for cash on a specific clerkCash is not adequately protected from theftCash is not independently counted

Select a control principle that is violated

Documentation proceduresHuman resource controlsEstablishment of responsibilityPhysical controlsSegregation of dutiesIndependent internal verification

3.

To minimize the risk of robbery, cash in excess of $100 is stored in an unlocked briefcase in the stock room until it is deposited in the bank.

Select a weakness in internal control

Inability to establish responsibility for cash on a specific clerkCash is not adequately protected from theftCash is not independently countedThe accountant should not handle cashCashiers are not bonded and background checks are not conducted

Select a control principle that is violated

Human resource controlsSegregation of dutiesEstablishment of responsibilityPhysical controlsIndependent internal verificationDocumentation procedures

4.

At the end of each day, the total receipts are counted by the cashier on duty and reconciled to the cash register total.

Select a weakness in internal control

Cashiers are not bonded and background checks are not conductedThe accountant should not handle cashInability to establish responsibility for cash on a specific clerkCash is not adequately protected from theftCash is not independently counted

Select a control principle that is violated

Documentation proceduresEstablishment of responsibilityHuman resource controlsPhysical controlsIndependent internal verificationSegregation of duties

5.

The company accountant makes the bank deposit and then records the day’s receipts.

Select a weakness in internal control

Cashiers are not bonded and background checks are not conductedCash is not independently countedInability to establish responsibility for cash on a specific clerkCash is not adequately protected from theftThe accountant should not handle cash

Answer 1

Keaton Company for over-the-counter cash receipts.-

For each procedure, weakness & control principle in internal control is explained below:

Sr. No	Procedure	Weakness	Principle Violated
1	Each store manager is responsible for interviewing applicants for cashier jobs. They are hired if they seem honest and trustworthy.	Cash is not adequately protected from theftInability to establish responsibility for cash on a specific clerk. The accountant should not handle cash. Cashiers are not bonded and background checks are not conducted. Cash is not independently counted	Documentation procedures. Independent internal verification Physical controls. Segregation of duties Human resource controls
2	All over-the-counter receipts are registered by three clerks who share a cash register with a single cash drawer.	Cashiers are not bonded and background checks are not conducted. The accountant should not handle cashInability to establish responsibility for cash on a specific clerk. Cash is not adequately protected from theft. Cash is not independently counted	Independent internal verification Physical controls.
3	To minimize the risk of robbery, cash in excess of $100 is stored in an unlocked briefcase in the stock room until it is deposited in the bank.	Cash is not adequately protected from theft. Cash is not independently counted. The accountant should not handle cash. Cashiers are not bonded and background checks are not conducted	Establishment of responsibility.
4	At the end of each day, the total receipts are counted by the cashier on duty and reconciled to the cash register total.	The accountant should not handle cashInability to establish responsibility for cash on a specific clerk	Segregation of duties
5	The company accountant makes the bank deposit and then records the day’s receipts.	Cash is not adequately protected from theftThe accountant should not handle cash	Human resource controls