Select a business in your community or online and obseve its internal controls o

Question

Select a business in your community or online and obseve its internal controls over cash receipts and cash payments. Locally, the business could be a bank, bookstore, restaurant, department store or other retailer. Online could be any B2B (Business to Business) or B2C (Business to Consumer) website. From your observation and based on information you learned in Chapter 8, identify the businesses internal cash controls, or lack thereof? If you were hired as an outside consultant, what recommendations would you make for this business. Look for potential risks and area where the business seems to excel.

Explanation / Answer

Cash is the asset most susceptible to improper diversion and use. Management faces two problems in accounting for cash transactions: 1. to establish proper controls to prevent any unauthorized transactions by officers or employees, and 2. to provide information necessary to properly manage cash on hand cash transactions. Yet even with sophisticated control devices, errors can do happen. Some of the basic control issues related to cash: 1.Using Bank Accouonts 2.The imprest petty cash system 3.Physical protection of cash balances 4.Reconciliation of Bank Balances Some of the basic control issues related to cash: 1.Using Bank Accouonts 2.The imprest petty cash system 3.Physical protection of cash balances 4.Reconciliation of Bank Balances A new employee (change risk) is responsible for processing cash transactions (inherent risk) in the planning department. However, there is adequate supervision and timely reconciliations are performed by other staff. Although this situation involves cash, and cash is always risky, the supervision and reconciliation functions provide compensatThere is a significant increase in the volume of activity (change risk) at the transfer station (inherent risk) that involves inadequate supporting documentation of cash transactions (inherent risk) now being handled by only one person due to staff reduction (change risk), a disgruntled employee with past personnel issues and possible financial problems (fraud risking controls to help mitigate the identified risks.

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