The following procedures were recently implemented at the Health Station, Inc. F

Question

The following procedures were recently implemented at the Health Station, Inc. For each procedure, indicate whether the internal control over cash represents (1) a strength or (2) a weakness. If it is a weakness, please explain why. (a) All mail is opened by the mail clerk, who forwards all cash remittances to the cashier. The cashier prepares a listing of the cash receipts and forwards a copy of the list to the accounts receivable clerk for recording in the accounts. (b) The accounts payable clerk prepares a voucher for each disbursement. The voucher along with the supporting documentation is forwarded to the treasurer’s office for approval. (c) At the end of each day, all cash receipts are placed in the bank’s night depository. (d) The bank reconciliation is prepared by the cashier, who works under the supervision of the treasurer.

Explanation / Answer

a. Cash keeper should not be the cash checker.

This is a weakness in internal control. The mails are first opened by Mail clerk who forwards them further to the cashier. The Cashier is receiving cash as well as listing down all the cash receipts and payments. Thus, he is the keeper as well as the checker. There is no accounting of mail records at the mail clerk's end. So there huge possibility that the Cashier may erode the cash without being caught.

b. This kind of internal control represents Strength as voucher is presented to the appropriate authority before disbursement.

c. This is a Strength in internal control as it prevents cash from theft and other misuse and frauds.

d. This represents Weakness in the internal control as treasurer as well as the cashier both are holding cash and controlling inflows as well as ouflows. In case of any material discrepancies in the cash, they can easily manipulate the bank reconciliation and defraud the company.

Related Questions

Navigate

• Browse (All)
• Browse T
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.