Can anyone help me with this?
At Idaho Company checks are not prenumbered because both the purchasing agent
and the treasurer are authorized to issue checks. Each signer has access to unissued
checks kept in an unlocked file cabinet. The purchasing agent pays all bills pertaining to
goods purchased for resale. Prior to payment, the purchasing agent determines that the
goods have been received and verifies the mathematical accuracy of the vendor’s invoice.
After payment, the invoice is filed by vendor and the purchasing agent records the payment
in the cash disbursements journal. The treasurer pays all other bills following approval
by authorized employees. After payment, the treasurer stamps all bills “paid,” files
them by payment date, and records the checks in the cash disbursements journal. Idaho
Company maintains one checking account that is reconciled by the treasurer.
(a) List the weaknesses in internal control over cash disbursements.
(b) Write a memo indicating your recommendations for improving company
procedures.
(a) Weaknesses in internal control over cash disbursements in the Idaho Company include:
1. Lack of prenumbered checks: Since the checks are not prenumbered, it becomes difficult to track the sequence of issued and used checks, increasing the risk of unauthorized or duplicate payments.
2. Unlocked file cabinet: Allowing access to unissued checks stored in an unlocked file cabinet poses a security risk. It increases the potential for theft or misuse of checks by unauthorized individuals.
3. Lack of segregation of duties: Both the purchasing agent and the treasurer are authorized to issue checks, which creates a lack of segregation of duties. This means that one person can perform the entire cash disbursement process, increasing the risk of fraud or errors going undetected.
4. No independent review: There is no independent review of payments made by the purchasing agent or the treasurer. This lack of oversight increases the risk of errors or fraudulent activities, such as payments made for unauthorized expenses or payments made to fraudulent vendors.
5. Insufficient documentation and filing: The lack of proper documentation and filing systems for invoices and paid bills can lead to difficulties in tracking and reconciling payments. This increases the risk of errors, duplicate payments, or difficulties in providing necessary information for audits or financial reporting.
(b) Recommendations for improving company procedures:
1. Implement prenumbered checks: Use prenumbered checks to provide a clear audit trail and easier tracking of issued and used checks. This will help detect any missing checks or unauthorized payments.
2. Improve physical security: Store unissued checks in a locked and secured cabinet to prevent unauthorized access. Access to the cabinet should be limited to authorized personnel only.
3. Segregate duties: Assign different individuals to handle the various steps of the cash disbursement process. For example, the purchasing agent should be responsible for verifying goods received and verifying vendor invoice accuracy, while the treasurer should be responsible for approving and issuing payments.
4. Establish an independent review process: Have a separate individual or department review payments made by both the purchasing agent and the treasurer. This will help detect errors or potential fraudulent activities. Implement regular audits of cash disbursement activities.
5. Standardize documentation and filing: Create a standardized system for documenting and filing invoices, paid bills, and other relevant documentation. Maintain a clear record of payment dates, amounts, and vendor information to facilitate reconciliation and future reference.
6. Reconcile checking account regularly: The treasurer should reconcile the checking account promptly to ensure that all payments have been accurately recorded and to identify any discrepancies or errors. This will help maintain the accuracy of financial records and detect any potential issues.