Question

E4-31B. (Learning Objective 4: Evaluate internal controls over cash receipts and cash payments) Rally Stores use point-of-sale terminals as cash registers. The register shows the amount of each sale, the cash received from the customer, and any change returned to the customer. The machine also produces a customer receipt but keeps no record of transactions. At the end of the day, the clerk counts the cash in the register and gives it to the cashier for deposit in the company bank account. Write a memo to convince the store manager that there is an internal control weakness over cash receipts. Identify the weakness that gives an employee the best opportunity to steal cash, and state how to prevent such a theft

Answer 1

Memo to the store manager:

It has come to my notice that the point of sale devices used by the company do not keep a record of the transactions processed. This is a serious discrepancy as a company cannot keep accurate track of its sales and revenue if accounting records are not available.The clerk counts the cash and gives it for deposit , however since there is no record of sales whether the cash reconciles with the products sold and their rates is not checked. This can lead to siphoning of fund in the organization.There is no mechanism to tally the cash deposits and no reconciliation method. The person who deposits the cash can easily embezzle it.

The weakness which gives an employee the best chanc eto embezzle cash is no reconciliation of cash receipts with actual sales and no maker and checker concept. This can be prevented by preparing detailed reconciliations and keeping a vehement control over each penny.