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14-21
14-30
POSSIBLE ERROR OR FRAUD
CONTROL
1. Customer checks are properly
credited to customer accounts and
are properly deposited, but errors
are made in recording receipts in
the cash receipts journal.
g. An employee, other than the
bookkeeper, periodically prepares
a bank reconciliation.
2. Customer checks are
misappropriated before being
forwarded to the cashier for deposit.
f. Monthly statements are mailed to
customers with outstanding balances.
3. Customer checks are received for
less than the customers’ full
account balances, but the
customers’ full account balances
are credited.
e. Total amounts posted to the
accounts receivable subsidiary
records from remittance advices
are compared to the validated
deposit slip.
4. Customer checks are credited to
incorrect customer accounts.
f. Monthly statements are mailed to
customers with outstanding balances.
5. Different customer accounts are
each credited for the same cash
receipt.
e. Total amounts posted to the
accounts receivable subsidiary
records from remittance advices are
compared to the validated bank
deposit slip.
14-22
14-31
DEFICIENCY
RECOMMENDED IMPROVEMENT
1. Financial secretary exercises too
much control over collections.
To extent possible, financial secretary’s
responsibilities should be confined to
record keeping.
2. Finance committee is not exercising
its assigned responsibility for
collection.
Finance committee should assume a
more active supervisory role.
3. The finance committee is responsible
for the auditing function and
administration of the cash function.
Moreover, the finance committee has
not performed the auditing functions.
An audit committee should be
appointed to perform periodic auditing
procedures or engage outside
auditors.
4. The head usher has sole access to
cash during the period of the count.
One person should not be left alone
with the cash until the amount has
been recorded or control established
in some other way.
The number of counters should be
increased to at least two, and cash
should remain under joint surveillance
until counted and recorded so that any
discrepancies will be brought to
attention.
5. The collection is vulnerable to robbery
while it is being counted and from the
church safe prior to its deposit in the
bank.
The collection should be deposited in
the bank’s night depository
immediately after the count. Physical
safeguards, such as locking and
bolting the door during the period of
the count, should be instituted.
Vulnerability to robbery will also be
reduced by increasing the number of
counters.
6. The head usher’s count lacks
usefulness from a control standpoint
because he surrenders custody of
both the cash and the record of the
count.
The financial secretary should receive a
copy of the collection report for
posting to the financial records. The
head usher should maintain a copy of
the report for use by the audit
committee.
7. Contributions are not deposited intact.
There is no assurance that amounts
withheld by the financial secretary for
expenditures will be properly
accounted for.
Contributions should be deposited
intact. If it is considered necessary for
the financial secretary to make cash
expenditures, he should be provided
with a petty cash fund. The fund
should be replenished by a check
based upon a properly approved
reimbursement request and
satisfactory support.
14-23
14-31 (continued)
DEFICIENCY
RECOMMENDED IMPROVEMENT
8. Members are asked to enter “cash” on
the payee line, thus making the
checks completely negotiable and
vulnerable to misappropriation.
Members should be asked to make
checks payable to the church. At the
time of the count, ushers should stamp
the church’s restrictive endorsement
(For Deposit Only) on the back of the
check.
9. No mention is made of bonding.
Key employees and members involved
in receiving and disbursing cash should
be bonded.
10. Written instructions for handling cash
collections apparently have not been
prepared.
Especially because much of the work
involved in cash collections is
performed by unpaid, untrained church
members, often on a short-term basis,
detailed written instructions should be
prepared.
11. The envelope system has not been
encouraged. Control features that it
could provide have been ignored.
The envelope system should be
encouraged. Ushers should indicate on
the outside of each envelope the
amount contributed. Envelope
contributions should be reported
separately and supported by the empty
collection envelopes. Prenumbered
envelopes will permit ready identification
of the donor by authorized persons
without general loss of confidentiality.
12. Records of contributions received that
are supplied to members as a tax
record of contributions made.
The church should only provide members
documentation of actual contributions
received versus contributions pledged
for tax purposes.
14-32
INTERNAL CONTROL
a.
STRENGTH OR
DEFICIENCY
b.
TRANSACTION RELATED
AUDIT OBJECTIVE
c.
NATURE OF DEFICIENCY
1. Credit is granted by a
credit department.
Strength
Occurrence of sales.
2. Once shipment occurs
and is recorded in the
sales journal, all
shipping documents are
marked “recorded” by
the accounting staff.
Strength
Completeness of sales.
3. Sales returns are
presented to a sales
department clerk who
prepares a written,
prenumbered receiving
report.
Deficiency
Prenumbered receiving reports should be
prepared by receiving department clerks
immediately upon receipt of returned goods.
A duplicate copy of the receiving report
should be sent to the credit department for
approval and preparation of a credit
memorandum that is then forwarded to
accounting to record the sales return.
4. Cash receipts received
in the mail are received
by a secretary with no
recordkeeping
responsibility.
Strength
Completeness of cash
receipts.
5. Cash receipts received
in the mail are
forwarded unopened
with remittance advices
to accounting.
Deficiency
This represents inadequate segregation of
duties because it gives custody of the cash to
those in accounting who are responsible for
recordkeeping activities. Personnel in
accounting could misappropriate cash
receipts and alter accounting records to hide
the fraud.
14-24
Copyright © 2017 Pearson Education, Inc.
14-32 (continued)
INTERNAL CONTROL
a.
STRENGTH OR
DEFICIENCY
b.
TRANSACTION RELATED
AUDIT OBJECTIVE
c.
NATURE OF DEFICIENCY
6. The cash receipts
journal is prepared by
the treasurer’s
department
Deficiency
The cash receipts journal represents the
primary accounting record for all cash
received. It should be prepared by personnel
within the accounting function, not the
treasury function. The treasury function has
primarily responsibilities surrounding the
any recordkeeping responsibilities.
7. Cash is deposited
weekly.
Deficiency
Cash should be deposited at least daily to
prevent loss or theft of cash.
8. Statements are sent
monthly to customers.
Strength
Occurrence of sales
Accuracy of sales
Posting and
summarization of sales
Completeness of cash
receipts
Accuracy of cash receipts
Posting and summarization of
cash receipts
9. Write-offs of accounts
receivable are
approved by the
controller.
Deficiency
This is an inappropriate segregation of
duties. The controller has recordkeeping
responsibilities. The write-off of accounts
involves authorization responsibilities. The
write-offs should be approved by the credit
department, not the controller.
10. The bank reconciliation
is prepared by
individuals independent
of cash receipts
recordkeeping.
Strength
Occurrence of cash
receipts
Completeness of cash
receipts
Accuracy of cash receipts
14-25
Copyright © 2017 Pearson Education, Inc.
14-26
14-33
CONTROL
TRANSACTION-
RELATED AUDIT
OBJECTIVE
POTENTIAL FINANCIAL STATEMENT
MISSTATEMENT IF CONTROL IS ABSENT
1.
Occurrence
Sales may be recorded for invalid or non-
existent products.
Accuracy
Sales may be processed based on inaccurate
price information.
2.
Occurrence
Sales may be recorded for non-existent
products.
Accuracy
Sales may be processed for existing products
using quantities ordered, even when ordered
quantities are not on hand.
3.
Occurrence
Sales may be processed for customers who are
unable to pay.
4.
Occurrence
Shipments may be made to persons making an
unauthorized credit card purchase (e.g., with a
stolen credit card).
5.
Accuracy
Sales may be processed inaccurately (e.g.,
wrong product, wrong price, wrong quantity).
6.
Occurrence
Sales may be recorded even though shipment
has not occurred.
Timing
Sales may be recorded in the wrong time
period.
14-27
■ Case
14-34 a.
14-28
14-34 (continued)
14-29
14-34 (continued)
b.
and
c.
TRANSACTION-
RELATED AUDIT
OBJECTIVE
INTERNAL CONTROLS
TEST OF CONTROL
1. Recorded sales
occurred.
Bill of lading and sales order
form are attached to invoice.
Sales are initiated by sales
order form from customer.
Credit department
investigates customer credit
and approves sales before
shipment of merchandise is
authorized.
Examine invoice
package for presence
of bill of lading and
sales order form.
Examine sales order
form for indication
of credit approval.
Review client’s credit
approval system for
effectiveness.
2. Existing sales
transactions are
recorded.
Bill of lading and invoices are
prenumbered (numerical
sequence is not accounted
for) and must be prepared
before merchandise is
shipped.
Account for numerical
sequences of bills
of lading and sales
invoices and
determine that all
have been recorded.
3. Recorded sales are
at the correct
amounts.
Control totals are prepared
and checked by computer.
(No verification of the sales
price is performed.)
Examine computer edit
reports for indication
of errors and
disposition thereof.
4. Sales transactions
are properly included
in the accounts
receivable master file
and are correctly
summarized.
Sales transactions are
simultaneously recorded in
sales, accounts receivable,
cost of sales, and relieved
from the perpetual inventory.
Trace sales
transactions to sales
journal.
5. Recorded sales are
properly classified.
None.
Not applicable.
6. Sales are recorded
on the correct dates.
None.
Not applicable.
