Acc220_Internal_Cash_Control

Internal Cash Control Rose Lowe ACC220 October 23, 2010 Anton Narinskiy The scenario for the Idaho Company’s checking account is a grim one. The principals of internal cash controls that have been violated are segregation of duties, establishment of responsibility, independent internal verification, and physical controls. With these violations, there is a possibility monies are misused. There are several suggestions to improve the deficiencies for the Idaho Company. First, checks need to be numbered sequentially. Without numbered checks, the ability to track all outstanding or missing checks is impossible, making bank reconciliations a nightmare to balance. I would recommend a system with check writing abilities therefore, no paper checks are sitting around an office and all checks can be tracked. Secondly, unissued checks need to be stored in a safe or other means of security. Right now, they are in an unlocked file cabinet, this just begs someone to steal them. These minor changes can be corrected quickly. The other changes needed to insure internal cash control calls for procedure changes within the company. The purchasing agent should not be writing checks. There is too much room for theft, the purchasing agent should only be responsible for purchasing inventory. It is possible for the purchasing agent to create a fake invoice, pay the invoice, and pocket the money. The purchasing agent should not be recording the payments in the cash disbursements journal; another employee should conduct this task. The only person to write checks should be the company treasurer however, other employees should be preparing the invoices for payment, marking paid on the invoice, filing the invoices, making the check entries in the cash disbursements journal, and doing the bank reconciliation; the treasure should not be performing these tasks. With these changes in place, there are better check and balances to assure no theft occurs, or mistakes are overlooked. The Guard Dog Company revamped their internal control over cash disbursements by making several changes. They began with establishing the responsibility of check signing to only the treasurer or the treasurer’s assistant. The company also segregated the duties of check approvals and payments. The purchasing agent and the accounts receivable managers approve invoices for payment, but have no authority to write checks. Once the checks are paid, they are sent to another employee to be recorded. The bank reconciliation is done by the assistant chief accountant, yet another employee to catch any possible theft or mistake. Guard Dog Company also mandated all checks written must have proper invoices attached. This verifies the check amount is the same as the invoice amount. Another documentation procedure was obtaining a checkwriter system. This system tracks all checks sequentially, verifying there are no missing checks. Physical controls are also necessary. Blank checks are placed in a safe, only the treasurer and his/her assistant has the combination. This safeguards the checks from theft. The next scenario is cash collections for a church. Currently there are no internal controls of the cash collected and theft of this cash is imminent. Cash is collected by a group of ushers and the head usher is currently responsible to count monies collected then, he/she places it in the safe. None of the ushers are bonded or permanent church employees, as they only serve as ushers for 1 to 3 months. The secretary then recounts the cash, keeps monies for expenses, and deposits the remainder, including checks made out to “cash.” This church needs to change all policies to improve internal control of their cash. My recommendations would be to first delegate one permanent person to count cash collections; my suggestion would be the Deacon. The ushers collecting the cash, should not be the same people to count and record it. I would also suggest appointing a treasurer; this person would make the deposit including all cash and checks. The treasurer would then give the deposit information to the financial secretary to record. The financial secretary would also conduct the bank reconciliation. Along with segregating these tasks, I would also suggest that all church members, if possible, make donations by check, with payee made out to the church, not cash. With this delegation of tasks, no misappropriation of monies will happen. The church has a bank account, it is unknown what type of account however, I would suggest the church owns a checking account. All monies collected should be deposited into this account. All bills should be paid out of this checking account; no bills should be paid by cash. The church would also benefit from obtaining a software system with a checkwriter so checks are written sequentially and tracked. Even though the church has confidence in the financial secretary, audits should be performed. The finance committee should conduct surprise audits several times a year to assure no mistakes or theft is taking place. With these changes in place, the church will probably see more funds available. Reference Kimmel, W. P., & Kieso D. (2003). Essential of accounting: tools for business decision making. Retrieved from Axia College, ACC220 website.