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.

The church's board of trustees has delegated responsibility for the financial management and audit of the financial records to the finance committee. This group prepares the annual budget and approves major disbursements but is not involved in collections or recordkeeping. No audit has been made in recent years because the same trusted employee has kept church records and served as financial secretary for 15 years. The church does not carry any fidelity insurance.
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. The 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.
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.”
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 books.

Instructions
1. Indicate the weaknesses in internal accounting control in the handling of collections.

The weaknesses in internal accounting control in the handling of collections can be identified based on the information provided:

1. Lack of segregation of duties: The same trusted employee has been responsible for keeping church records and serving as the financial secretary for 15 years. This means that this individual has control over the entire collection process, from counting the cash to making the bank deposits. There is no independent oversight or verification of the collection process.

2. Lack of rotation of duties: The head usher volunteers to serve for 3 months, which means that they have control over the cash collections during that period. This lack of rotation increases the risk of potential fraud or misappropriation of funds, as there is no regular turnover or change in responsibilities.

3. Lack of documentation: There is no mention of any formal documentation or record-keeping process for the collection plates or the cash count. This lack of documentation makes it difficult to track and verify the accuracy of the collections.

4. Lack of oversight: The finance committee, which is responsible for the financial management and audit of the church's financial records, does not have any involvement in the collections or recordkeeping process. Their absence means that there is no independent oversight or review of the collection activities.

5. Cash handling procedures: The financial secretary withholds a portion of the cash collected for cash expenditures, but the amount is not specified or documented. This lack of transparency and control over the withheld cash increases the risk of misappropriation.

6. Lack of fidelity insurance: The church does not carry any fidelity insurance, which means there is no coverage or protection in case of any fraud or employee misconduct.

Overall, the weaknesses in internal accounting control in the handling of collections include the lack of segregation and rotation of duties, lack of documentation, lack of oversight, inadequate cash handling procedures, and absence of fidelity insurance. These weaknesses increase the risk of potential fraud, misappropriation of funds, and errors in financial recordkeeping.

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Sra