Carl Kerns is one of the directors of the board. Carl said that as a board member they are given the profit and cash flow budgets. He was appointed by the board to conduct an internal audit of operations to look for weaknesses in the internal control system. His report uncovered the following processes that he believed needed to be strengthened. While the overall customer base is increasing from year to year, there may be internal control issues relating to how these new customers are secured. Some discounts that were being given to customers were recorded as a net amount on the invoices and gave no indication of the discount from standard prices. Some cash registers in the stores were not reconciling the cash in drawer with the register printout. Not all timesheet overtime amounts were being authorized by the line manager. Service invoices for some items of equipment were not signed or linked to a purchase order. There was no check that the work had been carried out. Not all assets in the stores had unique codes fixed to the asset. There was a minimal feedback line of communication from the shop floor to head office, particularly when an error in the budgeting report process was recognized. Debtor reconciliations were not done monthly and sometimes not at all. In busy times the cashiers that operated the registers were also asked to do their own reconciliations and banking. Sometimes the cash was held in the store for a day or two. Job roles were not clearly defined so that responsibilities and liability can be identified. There was little rostering of duties and cash receipts were not pre-numbered. Of concern to Carl was the directive given by the board to ensure that audit trails were created and maintained. These included: Signing the timesheets for employees under the authority of a department manager. Maintenance of a numbered cash receipts book. Using sequenced cheques as a systematic way of evidencing all monies paid out. Ensuring proper coding of evidenced transactions against appropriate general ledger account and cost center. Ensuring reconciliations between company books and third-party bank statements are performed Following questions: Detail why businesses need to maintain internal audit trails. Why is it important to identify discrepancies? Why you should compare forecasted data with the actual data. What methods could you use to ensure that there is no ‘misappropriation of funds’ (i.e. theft/ skimming/embezzlement) within an organisation?

Carl Kerns is one of the directors of the board. Carl said that as a board member they are given the profit and cash flow budgets. He was appointed by the board to conduct an internal audit of operations to look for weaknesses in the internal control system. His report uncovered the following processes that he believed needed to be strengthened. While the overall customer base is increasing from year to year, there may be internal control issues relating to how these new customers are secured. Some discounts that were being given to customers were recorded as a net amount on the invoices and gave no indication of the discount from standard prices. Some cash registers in the stores were not reconciling the cash in drawer with the register printout. Not all timesheet overtime amounts were being authorized by the line manager. Service invoices for some items of equipment were not signed or linked to a purchase order. There was no check that the work had been carried out. Not all assets in the stores had unique codes fixed to the asset. There was a minimal feedback line of communication from the shop floor to head office, particularly when an error in the budgeting report process was recognized. Debtor reconciliations were not done monthly and sometimes not at all. In busy times the cashiers that operated the registers were also asked to do their own reconciliations and banking. Sometimes the cash was held in the store for a day or two. Job roles were not clearly defined so that responsibilities and liability can be identified. There was little rostering of duties and cash receipts were not pre-numbered. Of concern to Carl was the directive given by the board to ensure that audit trails were created and maintained. These included: Signing the timesheets for employees under the authority of a department manager. Maintenance of a numbered cash receipts book. Using sequenced cheques as a systematic way of evidencing all monies paid out. Ensuring proper coding of evidenced transactions against appropriate general ledger account and cost center. Ensuring reconciliations between company books and third-party bank statements are performed Following questions: Detail why businesses need to maintain internal audit trails. Why is it important to identify discrepancies? Why you should compare forecasted data with the actual data. What methods could you use to ensure that there is no ‘misappropriation of funds’ (i.e. theft/ skimming/embezzlement) within an organisation?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

Carl Kerns is one of the directors of the board. Carl said that as a board member they are given the profit and cash flow budgets. He was appointed by the board to conduct an internal audit of operations to look for weaknesses in the internal control system. His report uncovered the following processes that he believed needed to be strengthened.

While the overall customer base is increasing from year to year, there may be internal control issues relating to how these new customers are secured.
Some discounts that were being given to customers were recorded as a net amount on the invoices and gave no indication of the discount from standard prices.
Some cash registers in the stores were not reconciling the cash in drawer with the register printout.
Not all timesheet overtime amounts were being authorized by the line manager.
Service invoices for some items of equipment were not signed or linked to a purchase order. There was no check that the work had been carried out.
Not all assets in the stores had unique codes fixed to the asset.
There was a minimal feedback line of communication from the shop floor to head office, particularly when an error in the budgeting report process was recognized.
Debtor reconciliations were not done monthly and sometimes not at all.
In busy times the cashiers that operated the registers were also asked to do their own reconciliations and banking. Sometimes the cash was held in the store for a day or two.
Job roles were not clearly defined so that responsibilities and liability can be identified.
There was little rostering of duties and cash receipts were not pre-numbered.

Of concern to Carl was the directive given by the board to ensure that audit trails were created and maintained. These included:

Signing the timesheets for employees under the authority of a department manager.
Maintenance of a numbered cash receipts book.
Using sequenced cheques as a systematic way of evidencing all monies paid out.
Ensuring proper coding of evidenced transactions against appropriate general ledger account and cost center.

Ensuring reconciliations between company books and third-party bank statements are performed

Following questions:

Detail why businesses need to maintain internal audit trails.
Why is it important to identify discrepancies?
Why you should compare forecasted data with the actual data.
What methods could you use to ensure that there is no ‘misappropriation of funds’ (i.e. theft/ skimming/embezzlement) within an organisation?

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