The following control activities are used in Sheeras Boutique Shoppe Ltd. for ca

Question

The following control activities are used in Sheeras Boutique Shoppe Ltd. for cash payments: 1. Blank cheques are stored in an unmarked envelope on a shelf behind the cash register. 2. The purchasing manager personally approves payments for purchases and signs the cheques issued to pay suppliens. J. When the store manager goes away for an extended period of time, she pre-signs cheques to be used in her absence. 4. The company cheques are not prenumbered. 5. The company accountant prepares the bank reconciliation and reports any discrepancies to the store manager

Explanation / Answer

a)CHEQUES SHOULD NOT KEPT IN OPEN PLACES. ANYONE COULD CASH IT. NOT NECESSARILY WORKERS IN THE COMPANY, ALSO AN OUTSIDER WHO HAPPENS TO BE AROUND AND JUST TOOK IT. ANYWAY IT SHOULD NOT BE SIGNED AND KEPT OUTSIDE. b) BLANK CHEQUES SHOULD BE LOCKED IN A SAFE a)THE PURCHASING MANAGER COULD CHECK FOR THE AUTHENTICITY OF THE PURCHASE BUT NOT SIGN THE CHEQUE. b) IT HAS TO BE THE CEO OR THE OWNER OTHERIWSE THE PURCHASING MANAGER WILL BE AUTHORISING HIS PERSONAL EXPENSES ALSO a) WHEN THE STORE MANAGER IS AWAY THERE WILL BE NO ONE IN AUTHORITY AND IT WILL BE VERY RISKY AS THE PERSON ALLOCATED THIS JOB COULD WRITE ANY LARGE SUM FOR SELF AND PRESENT IT TO BANK AS IF IT WAS FOR COMPANY USE. b) The cheques have to be in a safe and only a supervisor not connected to the Store Manager ( in jobs , like a CEO or Office manager) should be given authority to cash and this too with the invoice checked and approved by the Finance Director ( or someone higher in authority) a) It is risky as it will not be able to reconcile the bank statement . It is the sequential numbering, which makes it possible. Thus the bank reconciliation will be haphazard and there will be loopholes for fraud and corruption by dishonest employyes b) Cheques should ALWAYS be pre numbered. No bank issues non prenumbered cheque books a) Stores manager should not be involved with finance activities as it's not their duty. The accountant should not report to the stores manager for any finance activity as it is not the concern of stroes and anyway he/she will not have the knowledge and experience to check discrepancies. b) The bank reconciliation should be prepared by an accounts clerk and checked by the accountant and any discrepancies should be clarified with the bank and reported to Finance Director or CEO

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