Can anyone help me with this?
Guard Dog Company recently changed its system of internal control over cash
disbursements. The system includes the following features.
Instead of being unnumbered and manually prepared, all checks must now be
prenumbered and written by using the new checkwriter purchased by the company. Before
a check can be issued, each invoice must have the approval of Jane Bell, the purchasing
agent, and Dennis Kurt, the receiving department supervisor. Checks must be
signed by either Tom Kimball, the treasurer, or Karen Thews, the assistant treasurer. Before
signing a check, the signer is expected to compare the amounts of the check with
the amounts on the invoice.
After signing a check, the signer stamps the invoice “paid” and inserts within the
stamp, the date, check number, and amount of the check. The “paid” invoice is then sent
to the accounting department for recording.
Blank checks are stored in a safe in the treasurer’s office. The combination to the
safe is known by only the treasurer and assistant treasurer. Each month the bank statement
is reconciled with the bank balance per books by the assistant chief accountant.
Instructions
Identify the internal control principles and their application to cash disbursements of
Guard Dog Company
To identify the internal control principles and their application to cash disbursements of Guard Dog Company, we can analyze the features mentioned in the scenario. Here are the internal control principles applied:
1. Establishment of Responsibility: The company has designated specific individuals with roles and responsibilities for different steps of the cash disbursement process. Jane Bell and Dennis Kurt are responsible for approving invoices, and Tom Kimball and Karen Thews are responsible for signing the checks.
2. Segregation of Duties: The company has separated the duties of approving invoices, receiving goods, signing checks, and recording transactions among different individuals. This segregation of duties reduces the risk of fraud or errors.
3. Documentation Procedures: The checks are prenumbered and written using a checkwriter. This ensures that each check is accounted for and there is a proper record of the disbursement activity. Additionally, the "paid" invoices are stamped with the necessary information and sent to the accounting department for recording.
4. Physical Controls: The blank checks are stored in a safe with restricted access to only the treasurer and assistant treasurer. This control ensures that unauthorized individuals cannot manipulate or misuse the blank checks.
5. Independent Internal Verification: The assistant chief accountant reconciles the bank statement with the bank balance per books each month. This independent verification helps detect any discrepancies or errors in the cash disbursement process.
By implementing these internal control principles, Guard Dog Company aims to safeguard its cash disbursements, prevent fraud or errors, and ensure accurate financial record-keeping.