Bill Jensen, a staff member of Zhan & Co., CPAs, has given you the following list of what he refers to as “internal control deficiencies” for the Zabling Co. audit and has asked you to review each point and make certain that you agree that each is an internal control deficiency. For each of the following items, reply A (Agree) or D (Disagree) indicating whether the item represents an internal control deficiency. a. Voided checks are torn up and destroyed. b. Separate sequences of prenumbered checks are used for each bank account. c. The purchasing department manager and assistant manager are the authorized check signers. d. No checks are made payable to cash. e. The authorized check signers reconcile bank accounts. f. All cash receipts (checks) received through the mail are prelisted by the two individuals who open the mail. g. All cash receipts received through the mail are restrictively endorsed when received. h. When a disbursement is made based on paper supporting documents, those supporting documents are canceled by the individual who signs the check.
agree
a. A (Agree)
Voided checks being torn up and destroyed is an internal control deficiency because they should be properly documented and maintained as part of the company's record-keeping process.
b. D (Disagree)
Using separate sequences of prenumbered checks for each bank account is not an internal control deficiency. In fact, it is considered a good internal control practice as it helps in tracking and reconciling transactions for each bank account separately.
c. A (Agree)
The purchasing department manager and assistant manager being the only authorized check signers could potentially be an internal control deficiency. Having only two individuals with check signing authority could create a risk of collusion and fraud, as there is not enough segregation of duties.
d. D (Disagree)
Not making checks payable to cash is not an internal control deficiency. It is a proper internal control measure to ensure that all disbursements are adequately documented and traceable to specific payees.
e. D (Disagree)
Authorized check signers reconciling bank accounts is not an internal control deficiency. In fact, it can be a good internal control measure to ensure that the authorized individuals have direct visibility and oversight of the cash balances and transactions.
f. D (Disagree)
Prelisting cash receipts received through the mail by two individuals is not an internal control deficiency. It is a good internal control practice to have multiple individuals involved in the process to ensure adequate segregation of duties and minimize the risk of fraud or misappropriation.
g. D (Disagree)
Restrictively endorsing cash receipts received through the mail is not an internal control deficiency. It is a proper internal control measure to ensure that the cash received is traceable and can only be deposited into the company's designated bank accounts.
h. A (Agree)
Canceling supporting documents by the individual who signs the check can be considered an internal control deficiency. The person who signs the check should not have the authority to cancel the supporting documents, as it increases the risk of unauthorized disbursements or manipulation of records. Proper separation of duties is required in this case.