Select one of the following independent cases. Each student should select a diff

Question

Select one of the following independent cases. Each student should select a different case. For the case you select, describe any violations of good internal control procedures and indicate the steps you would suggest to correct the internal control weakness.

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.

4. Nashville Supply Company sent Regent Company two invoices for the same order; the first on June 10 and the second on July 20. The accountant authorized payment of both invoices and both were paid.

5. The purchasing agent, Susan Martin, used a Carter Company purchase order to order building materials from Builders Mart. Later, she telephoned Builders Mart and changed the delivery address to her home address. She told Builders Mart to charge the material to Carter Company. At month-end, she approved the invoice from Builders Mart for payment.

6. Karen Tally is the company's computer specialist and oversees its computerized  payroll system. Her boss recently asked her to put password protection on all    office computers. Karen has put a password in place that allows only the boss    access to the file where pay rates are changed and personnel are added or  deleted from the payroll.   

Students must also respond to the postings of other students and discuss follow-up responses to their own postings.

Explanation / Answer

Case 1.

As given in the narrative, entire process is handled by John Smith. There must be a segregation of duties in a process flow to strengthen internal controls. There is a lack of documentation to be checked before releasing cash. document/voucher must be approved by an officer/manager. A seperate person must do the reconciliation and submit the list to accounts department.after approval of the list by chief accountant, check must be released to John.

Case 2

Chief Accountant is preparing the reconcilation and maintain check register in addition to approval of checks. This may lead to collusion and harms independency in a process. there must be a seperate person for doing reconcilation and maintaing resgisters.

Case 3

Fran receiving the mail should not be preparing the list and posting to subsidiary ledgers. Posting should be done by Jerry only. In present scenario, Jerry is dependent on Fran's list for posting to general ledger. There should be proper process, Fran should prepare a list of all mails, list should get approved by the accountant, the same is then posted byJerry, reconcilation should be done by seperate person in accounting department and deposit of checks in the Bank to be done by cashier. accounts department should sent monthly statement to customers.

Case 4

It seems that there is no process and control checks at all for account payables at Nashville supply. A good account payable system should have the following attributes

1. There must be a purchase requisition and purchase order against which the invoice can be identified.

2. Goods must be received against such order and duly checked by the concerned user. Corresponing Accounting entry must be passed by user as Goods received Note (GRN).

3. Invoice must be verified and checked by the Accounts department. Correspoing accounting entry must be passed by accounts department as invoice receipt note (IRN).

4. after above steps, invoice should reach Accounts Payable team for payment. AP team verifies the invoice, if GRN is done or note, the quantity received is adjusted against PO quantity or not etc. after all checks, payment is released and accounting entries to supplier accounts are passed.

5. Since the supplier account is settled at the end of payment cycle. There is no possibility of making a double payment.

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