In: Accounting
You are currently part of a university work experience program. Your job placement is at the municipal transit centre. Your supervisor is responsible for the recording and distribution of monthly transit passes to authorized vendors throughout the city. The vendors pay €50 per bus pass and sell them for €55. Your job is to prepare a monthly reconciliation of the transit passes including the quantity sold, the number actually distributed, the unsold passes, and the cash proceeds. You are unable to reconcile the past two months. The bus passes are sequentially numbered and, in checking the sequence, you notice that numbers 9750 to 9820, 11012 to 11750, and 22000 to 22440 cannot be accounted for. You bring this to the attention of the supervisor, who tells you that reconciliations are never done; the job was created by her superior “to give you something to do” and you are told not to worry about it.
What is the main objective of internal control and how is it accomplished?
Why should recordkeeping of assets be separated from custody over the assets?
Quantify the potential error that the missing bus passes could create. Should you report your findings?
1. The main objective of internal control is to control the environment, integrity, ethical values and to control activities of the organisation. Internal control is necessary as it prevents risk of fraudulent activities in the organization. Whether company is following legal rules or not, maintaining standards or not is the aim of internal control. Reviewing activities of organisation time to time helps in better control of inventory also.
It can be established by internal auditing. Checking the financial reports, budgets etc and matching them with required standard and legal compliances time to time(it can be quarterly, monthly, semi annually or annually) ensures transparency as well as depicts true picture of organisation's position.
2. Separating the two rules ensures that there is oversight and review to catch errors. It also aids in the prevention of theft and fraud because it requires the cooperation of two separate people in order to hide a transition.
Recordkeeping of assets should be separated from custody over the assets as it becomes easy to catch errors and problems. If a person who has access to the assets does recordkeeping for the same, there are many chances for fraud, theft or any type of wrong activities. The person can misuse the power of the same and can make up unfair financial reports and can cause fraudulent activity. Therefore it is necessary to separate both of them. By doing the same, there is oversight and review to catch errors.
3. Potential error that the missing bus passes could create are:
- Company will fail to detect losses as well fraud.
-There could be misuse of information. Here, as there was no information regarding some bus passes. it is possible that those passes were sold at higher prices in other market or someone is misusing the pass for crime etc.
-In case any issue or problem arises in future because of present or past error, it can take company in problem.
Yes, of course I should report the findings. As responsibilty to audit the statements is on me, in future I will be liable for any mishappening Also, it is unethical to not report the same. There are qualities like honesty, integrity, loyalty that is expected from the employees and all individuals related to the company.
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