E7-3 The following control activities are used at Tolan Ltd. for over-the-counte

Question

E7-3 The following control activities are used at Tolan Ltd. for over-the-counter cash receipts 1. Cashiers are experienced, so they are not bonded. 2. All over-the-counter receipts are received by one of three dlerks. The clerks share a cash register with a single cash drawer. 3. To minimize the risk of robbery, cash in excess of $100 is stored in an unlocked strongbox in the stockroom until it is deposited in the bank. 4. At the end of each day, the total eceipts are counted by the cashier on duty and reconciled to the cash register total. 5. The company accountant makes the bank deposit and then records the day's receipts. 6. If a customer has the exact change and does not want a receipt, the sale is not entered in the cash register. The money is kept in a loose change box. Instructions (a) For each of the above situations, explain the weakness and identify the control activity that is violated (b) For each weakness, suggest an improvement.

Explanation / Answer

1) Cash are experienced, so they are not bonded

Weakness: Cashiers are not bonded

Control activity that is violated: Human resource controls

Improvement: All cashiers must be bonded

2) All over the counter receipts are registered by three clerks who share a cash register with a single cash drawer

Weakness: Inability to establish responsibility

Control activity that is violated: Establishment of responsibility

Improvement: Providing a separate cash drawer or code key for each clerk

3) To minimize the risk of robbery, cash in excess of $100 is stored in an unlocked attaché case in the stock room until it is deposited in the bank

Weakness:

Control activity that is violated:

Improvement: Cash needs to be stored in a locked cabinet/safe until deposited

4) At the end of each day the total receipts are counted by the cashier on duty and reconciled to the cash register total

Weakness: Cash is not adequately protected

Control activity that is violated: Physical controls

Improvement: A supervisor has to count cash and afterwards reconcile the total to the cash register tape

5) The company accountant makes the bank deposit and then records the day’s receipts

Weakness: accountant should not handle

Control activity that is violated: Segregation of duties

Improvement: The same employee must not make the bank deposit and record the day’s receipts. A person in the cashier’s department needs to make the deposit

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