The board of trustees of a local church is concerned about the internal accounti

Question

The board of trustees of a local church is concerned about the internal accounting controls for the offering collections made at weekly services. The trustees ask you to serve on a three-person audit team with the internal auditor of a local school and a qualified accountant who has joined the church. At a meeting of the audit team and the board of trustees you learn the following: 1. The church’s board of trustees has delegated responsibility for the financial management and audit of the financial records to the finance committee. This group prepares the annual budget and approves major payments. It is not involved in collections or record keeping. No audit has been made in recent years because the same trusted employee has kept church records and served as financial secretary for 15 years. 2. The collection at the weekly service is taken by a team of ushers who volunteer to serve for 1 month. The ushers take the collection plates to a basement office at the rear of the church. They had their plates to the head usher and return to the church service. After all plates have been turned in, the head usher counts the cash received. The head usher then places the cash in the church safe along with a notation of the amount counted. The head usher volunteers to serve for 3 months. 3. The next morning the financial secretary opens the safe and recounts the collection. The secretary withholds P150-P200 in cash, depending on the cash expenditures expected for the week, and deposits the remainder of the collections in the bank. To facilitate the deposit, church members who contribute by cheque are asked to make their cheques payable to ‘Cash’. 4. Each month, the financial secretary reconciles the bank statement and submits a copy of the reconciliation to the board of trustees. The reconciliations have rarely contained any bank errors and have never shown any errors per books. 5. 6. Questions: 1. Indicate the weaknesses in internal accounting control over handling of collections. 2. List the improvements in internal control procedures that you plan to make at the next meeting of the audit team for (1) the ushers, (2) the head usher, (3) the financial secretary and (4) the finance committee. 3. What church policies should be changed to improve internal control?

Explanation / Answer

Solution:-

1. Indicate the weaknesses in internal accounting control over handling of collections:-

There were several weaknesses in the internal control of the church. The responsibility for collecting, recording and storing cash collected from the collection plates are held by volunteers who only serve on a limited basis. This allows a lot of room for unnoticed theft on the part of the volunteers. There is no way for the church secretary to ensure all money collected made it to the next morning when he recounts the money. The secretary also holds an undetermined amount of money before bank depositing for expected expenses. This makes it easy for theft on the part of the church secretary. Church members being encouraged to make checks out for “cash” makes it easier for theft on the part of volunteers and the secretary since checks made out for “cash” can be cashed by anyone. The reconciliation of bank statements rarely having bank errors or book errors implies either intentional or unintentional theft on the part of the secretary. No one is perfect and neither can the bank nor the books ever show errors. The finance committee is a big weakness since they prepare the annual budget and approve major disbursements. They could easily approve a large payment that would be either intentional or unintentional theft on the part of one employee. Lastly, no audit has been made for several years leaving any potential tracking of theft unnoticed for many years increasing the overall amount of errors or theft.

2. List the improvements in internal control procedures that you plan to make at the next meeting of the audit team for (1) the ushers, (2) the head usher, (3) the financial secretary and (4) the finance committee:-

The following is a list of improvements for internal control procedures.

3. What church policies should be changed to improve internal control:-

The church should change some of their policies in order to improve internal control over their cash. The church should increase the time volunteers should serve as ushers. They should make the head usher an employee of the church. Allow for regular audits of the books and bank statements. The church should create a specific amount of petty cash to be kept on hand and require receipts to replace any petty cash spent.

Please Rate or comment if you have any doubt regarding this solution.

Related Questions

Navigate

• Browse (All)
• Browse T
• Subjects

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