Physical, Mechanical, and Electronic controls are imperative which include examples such as Safes, and safety deposit boxes, storage cabinets that are used for inventory and records, pass key access in companies, alarms, television monitors, and time clocks for recording of time. 3.Segregation of duties: Segregation of duties embodies the ideas that responsibility related activities should be delegated to different individuals and that record keeping for an asset should be kept separate from the physical custody of that same asset. When a customer walks into Culottis Pizza they can see employees making the pizzas in the oven area. The custody of the asset (in this case the pizza) is being kept separate from the front counter clerk. The front counter clerk stays out of the kitchen and is responsible for ringing up the sale in the register system (documenting the sale) and trading payment for the product. These are two duties that are within customer view that are kept segregated. 4.Independent Internal Verification: When walking in to pick up a pizza a customer may see one employee on the cash register taking the cash from the customers to pay for the pizza.
This employee is designated by the owner to maintain custody of the cash on hand. This internal control makes it easy for the owner to track down the person responsible if there are any discrepancies with the cash at the end of the day. A customer may also observe the employee when he or she is reading the register tape. This employee is verifying the transactions on the register tape with the cash that is in the drawer to make that each the amount of each transaction is accounted for by the cash that is in the drawer. 5.Documentation procedures: In the event of this story, there are no document procedures. 6.Other Controls: In consequence of employees handling the cash from the customers, each employee could be bonded, which allows insurance for the business due to the theft of the employees. Rotating the employees on the cash register at set times and making sure each closes their portion at the end of his or her shift. The procedure will allow the company to check each drawer and make sure it is correct. Finally, the company can do a background check on their employees. This information will provide the company with the information on potential employees and if he or she has ever been charged with a crime that relates to theft from another company.
CHAPTER 7 PROBLEM SET B: P7-2B (PAGE 359)
The board of trustees of a local church is concerned about the internal accounting controls pertaining to the offering collections made at weekly services. They ask you to serve on a three-person audit team with the internal auditor of the university and a CPA who has just joined the church. At a meeting of the audit team and the board of trustees you learn the following: 1. the churchs board of trustees has delegated responsibility for the financial management and audit of financial records to the finance committee. This group prepares the annual budget and approves major disbursements but is not involved in collections or record keeping. No audit has been made in recent years because the same trusted employee as kept church records and served as financial secretary for 15 years. The church does not carry any fidelity insurance. 2. The collection at the weekly service is taken by a team of ushers who volunteer to serve for 1 month. The ushers take the collection plates to a basement office at the rear of the church. They hand their plates to the head usher and return to the church service. After all plates have been turned in, the head usher counts the cash received.
They head usher then places the cash in the church safe along with a notation of the amount counted. The head usher volunteers to serve for 3 months. 3. The next morning the financial secretary opens the safe and recounts the collection. The secretary withholds $150-$200 in cash, depending on the cash expenditures expected for the week, and deposits the remainder of the collections in the bank. To facilitate the deposit, church members who contribute by check are asked to make their checks payable to Cash. 4. Each month the financial secretary reconciles the bank statement and submits a copy of the reconciliation to the board of trustees. The reconciliations have rarely contained any bank errors and have never shown any errors per book. Instructions:
(a) Indicate the weakness in internal accounting control in the handling of collections. One weakness in the internal accounting control for handling collections includes the comprehensive use. In the event of internal audit control systems, they can be very broad in their application that creates a weaker audit control system (Vitez, O). A weakness in the handling of collections found could also be one since the cash is handled by multiple ushers and can become time consuming. This weakness also becomes difficult for management situations for the church members that attempt to maintain the proper business practices. The second weakness is the lack of knowledge that the individuals that handle and record the money have. If the ushers that count and record the money do not know how to properly record the fund this could lead to shortages. (b) List the improvements in internal control procedures that you plan to make at the next meeting of the audit team for (1) the ushers, (2) the head usher, (3) the financial secretary, and (4) the finance committee. The ushers will be on a rotation for a set amount of time so; every usher will at some point hold the responsibility of collecting the offering. A team of appointed ushers will take up the collection. The ushers will then take the collection to the back area of the church where the funds are counted. Once the money has been collected the ushers will then hand off the collection of funds to the head usher. The head usher will recount the funds received from the collection, and place the funds into the church safe along with a total count of the funds that were collected. Improvements for the Financial Secretary: After re-counting the cash she should record how much was collected on an accounting record and record how much she kept on hand for that week and how much she deposited in the bank on this same record. Checks should be made payable to the name of the church for example Saint Josephs or The First Baptist Church.
Improvements for the Finance Committee: The finance committee should have audits conducted at least once a year at random. The finance committee should run a background check on all members who handle cash. The finance committee should oversee the board of trustees and take final look at all financial records. The finance committee should get fidelity insurance. (c) What church policies should be changed to improve internal control? Audits should be done regularly to ensure the accuracy and that financial records are being completed ethically. I would suggest doing it on a quarterly basis. Additionally, the church should immediately obtain fidelity insurance. I see no problem with the monthly rotation of ushers who collect the donated funds; however they should stay in the basement office and serve as a witness to the counting of donated funds.
The head usher should fill out a form stating how much has been received in cash and how much in check donations. The funds should then be placed in a sealed bag with the initials of those present written on the seal. Funds can continue to be placed in the church safe. The financial secretary needs to determine how much money is needed for the weekly expenditures and submit this amount along with the sealed bag of donations to the bank. She should then watch the bank verify the amount of cash and check donations in the sealed bag. The entire amount should be deposited and the financial secretary should then withdrawal the amount needed for the week either by withdrawal slip or check. Everything should be thoroughly documented in the banks financial records. Additionally, donations made in the bank form should never be written to cash but rather to the church itself to insure checks are going to the church and not for personal use. The financial secretarys reconciled bank statement should be reviewed thoroughly by another person before submittal to the board of trustees.
Kimmel, P. D., Weygandt, J. J., & Kieso, D. E. (2007). Financial accounting: Tools for business decision making (4th ed.). Hoboken, NJ: John Wiley & Sons. Vietz, Osmond. Weaknesses in an Internal Audit Control System. (2012).http://www.smallbusiness.chron.com/weaknesses-internal-audit-control-system-3810.html Williams, J. R., Haka, S. F., & Bettner, M. S. (2005). Financial & managerial accounting: The basis for business decisions (13th ed.). New York, NY: McGraw-Hill Companies.