Question

When controlling cash the preventative controls include?

A. Allowing everyone access to the cash register to prevent the supervisor from having to balance the register at the end of the day

B. Having 2 different people responsible for taking in cash and depositing it in the bank

C. The audit of the register tapes the next day

D. Verifying deposit tickets to monthly bank statements

Answer 1

Solution

Answer: Option (B)

Explanation:
Segregation of duties is a key internal control intended to minimize the occurrence of errors or fraud. If internal control is to be effective, there needs to be an adequate division of responsibilities.  In general, the flow of transaction processing and related activities should be designed so that the work of one individual is either independent of, or serves to check on, the work of another. Such arrangements reduce the risk of undetected error and limit opportunities to misappropriation or concealment of intentional misstatements in the financial statements. Any unit collecting or maintaining cash needs to ensure that collections are sufficiently safeguarded. Cash handling duties can be divided into several stages, should be performed by different individuals. The purpose of this segregation of duties is to minimize the opportunity for an employee to misappropriate funds and avoid detection. In a smaller department, it may not be feasible to fully segregate all of the cash-related duties. In these circumstances, the department may rely on compensating controls to mitigate the risk that cash is misappropriated.
Hence it is clear that responsible should be allocated into multiple person as it will reduce the risks.
Therefore, When controlling cash, there should have 2 different people responsible for taking in cash and depositing it in the bank.