Consider the following independent situations: 1. John Smith is the petty-cash custodian. John approves all requests for payment out of the $200 fund, which is replenished at the end of each month. At the end of each month, John submits a list of all accounts and amounts to be charged, and a check is written to him for the total amount. John is the only person ever to tally the fund. 2. All of the company's cash disbursements are made by check. Each check must be supported by an approved voucher, which is in turn supported by the appropriate invoice and, for purchases, a receiving document. The vouchers are approved by Dean Leiser, the chief accountant, after reviewing the supporting documentation. Betty Hanson prepares the checks for Leiser's signature. Leiser also maintains the company's check register (the cash disbursements journal) and reconciles the bank account at the end of each month. 3. Fran Jones opens the company's mail and lists all checks and cash received from customers. A copy of the list is sent to Jerry McDonald who maintains the general ledger accounts. Fran prepares and makes the daily deposit at the bank. Fran also maintains the subsidiary ledger for accounts receivable, which is used to generate monthly statements to customers. Write a memo to your instructor indicating the apparent internal control weaknesses and suggest alternative procedures to eliminate the weaknesses.

Solution

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Answered 2 years ago

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Since John Smith is authorized to approve all payments outside of petty cash fund, he should not also prepare approved checks.
Cash receipts have to provided for all purchases, and different employee should review these receipts than person who received it.
Checks have to be signed and serially numbered, as well as to require double signature for higher value purchases.
Charge customers by checks written to their accounts instead of John's.
Other employee should periodically reconcile bank statement against cash receipts.