Internal Control and Cash

The Idaho Company had its financial operations and there are weaknesses in internal control over cash.  It is identified that there are no pre numbered checks since there are two personnel that are authorized to issue checks, thus, giving each the opportunity to execute disbursements and manipulate it in such a way that there could be unnecessary purchases of goods. In result, conflict of interest may arise. Checks represent monetary property of a company, thus safekeeping is important but it is stated that no proper storage of checks is done but instead exposed not only to the treasurer and purchasing agent who are the issuers of checks but to other particulars that may have personal interest on it. Only the purchasing agent reviews and verifies invoices issued by vendors and there can be a risk of intentional misstatement of payments.  Vendors file invoices instead of the company’s Treasury Department or Accounting Department for validation and recording of accounting entry. Recording of check disbursement is not properly done since the treasurer is tasked to pay all bills and it appears that the treasurer will have a hard time reconciling all checks disbursed since issuance is separately done.

TO:

FROM:

SUBJECT:      Proposed procedure on disbursements

DATE:

Based on my observations on the company’s procedure on various cash disbursement and authorizations to settle payables, I would like to recommend the methods or systems to strengthen the company’s internal control program.

All check disbursements should be issued only by the Treasury Department by proper approval of authorized officer. Bank reconciliation should be done by Accounting Department only. Pre-numbering of accountable forms should be strictly implemented.

Payment to vendor should be reviewed by Accounting Department and Treasury Department prior to the release of check.

Filing of necessary supporting documents of various disbursements should be Accounting Department for proper review of accounting entry.

Security lock for the safekeeping of accountable forms such as checks and official receipts should be installed.  Access should only be for the authorized officer or personnel.

Case P4-1A

The Documentation procedure is being implemented through pre numbering of checks and written by using the checkwriter.

Establishment of responsibility is being implemented in the issuance of check. Each invoice must have an approval of the purchasing agent and the receiving department supervisor. Checks must be signed by either the treasurer or the assistant treasurer.  In addition blank checks is stored in the safe or vault in the treasurer’s office.  The combination of the safe shall only be known by the treasurer or treasurer assistant.

Segregation of duties is shown on the procedure by filing of paid invoice being done by Accounting Department for recording of transaction.

Independent internal verification, this is being implemented by preparing bank statement reconciliation by assistant chief accountant.

Case P4-2A

A.

The team of ushers who is in charge of weekly service collection has no supervisor to check the handling of collection plates to basement office thereby increasing the risk of pilferage of collection. The same also on the case of head ushers noted is the absence of independent personnel to witness the cash counting of collection to be placed in the church safe.

There is also no proper accountability or establish procedures in withholding of cash for various expenditures for the week. Checks are also made payable to cash which is very liquid and prone to pilferage and misappropriation. There is no segregation of duties and responsibilities since the financial secretary do the reconciliation of the bank statement and at the same time handle the deposits and other recordings.

B.

For the Ushers, to assign a team leader that will supervise the actual collection up to the handling of collection to the head usher.

For the head Usher, to conduct cash count in the presence of independent auditor or personnel for proper attestation of counting.

For the Financial Secretary, to establish petty cash fund to be used on the weekly expenditure. This petty cash fund is subject for periodic reconciliation and all the expenses to be paid from the petty cash fund should have proper approval from authorized officer.

Finance committee, to apply fidelity insurance and to create audit program.

C.

There should be policies of keeping of records and having the fidelity of insurance.

Policy on the tenure of volunteers on the service should be established such as the period of their service. Establishment of policy on the cash expenditure should be created.