Select a business in your community and observe its internal control over cash receipts and cash payments. The business could be a bank, bookstore, restaurant, department store, or other retailer. What are the strengths and weaknesses? What would you do to correct the weaknesses?
To observe the internal control over cash receipts and cash payments of a business in your community, you can follow these steps:
1. Select a specific business: Choose a business you are familiar with, such as a restaurant or a bookstore. This will allow you to have better insights into their operations and internal controls.
2. Observe the cash receipts process: Look at how the business handles cash received from sales or other income sources. Here are some aspects to consider:
- Is there a designated area where all cash receipts are received and documented?
- Are there proper protocols in place to ensure all cash received is accurately recorded?
- Is there segregation of duties between individuals responsible for receiving, depositing, and recording cash receipts?
- Are receipts kept for reference and audit purposes?
3. Evaluate the cash payments process: Review how the business handles cash payments for expenses or other financial obligations. Look at the following factors:
- Does the business have a system for authorizing and approving cash payments?
- Are there controls in place to prevent unauthorized cash payments?
- Are there clear records of all cash payments made?
- Is there segregation of duties between individuals responsible for approving, disbursing, and recording cash payments?
Strengths and weaknesses of the internal controls over cash receipts and cash payments will depend on the specific observations you make during your assessment. Here are some common examples:
Strengths:
- Clear and documented cash receipt and payment procedures.
- Proper segregation of duties to reduce the risk of fraudulent activities.
- Regular reconciliation of cash receipts and payments.
Weaknesses:
- Lack of clear procedures or documentation for cash handling.
- Insufficient segregation of duties, such as one person being responsible for both receiving and recording cash.
- Inadequate control over cash payments, leading to the possibility of unauthorized or inaccurate disbursements.
To correct these weaknesses, the following steps can be taken:
- Implement and enforce clear procedures for cash handling, including guidelines for receiving, recording, and depositing cash.
- Ensure proper segregation of duties by assigning different individuals to the roles of receiving, recording, and depositing cash.
- Regularly reconcile cash receipts and payments to identify any discrepancies or errors.
- Conduct periodic internal audits to assess the effectiveness of internal controls and identify areas for improvement.
- Provide training to employees on the importance of proper cash handling procedures and the potential risks of mishandling or misappropriation of cash.
By addressing these weaknesses and improving internal controls, the business can reduce the risk of errors, fraud, and mismanagement of cash receipts and payments.