The following procedures were recently installed by Raspberry Creek Company:
a. After necessary approvals have been obtained for the payment of a voucher, the treasurer signs and mails the check. The treasurer then stamps the voucher and supporting documentation as paid and returns the voucher and supporting documentation to the accounts payable clerk for filing.
b. The accounts payable clerk prepares a voucher for each disbursement. The voucher along with the supporting documentation is forwarded to the treasurer’s office for approval.
c. Along with petty cash expense receipts for postage, office supplies, etc., several postdated employee checks are in the petty cash fund.
d. At the end of the day, cash register clerks are required to use their own funds to make up any cash shortages in their registers.
e. At the end of each day, all cash receipts are placed in the bank’s night depository.
f. At the end of each day, an accounting clerk compares the duplicate copy of the daily cash deposit slip with the deposit receipt obtained from the bank.
g. All mail is opened by the mail clerk, who forwards all cash remittances to the cashier. The cashier prepares a listing of the cash receipts and forwards a copy of the list to the accounts receivable clerk for recording in the accounts.
h. The bank reconciliation is prepared by the cashier, who works under the supervision of the treasurer.
Instructions
Indicate whether each of the procedures of internal control over cash represents (1) a strength or (2) a weakness. For each weakness, indicate why it exists.
Answer:
Strengths: a, b, e, and f
Weaknesses:
c. Employees should not be allowed to use the petty cash fund to cash personal checks. In any case, postdated checks should not be accepted. In effect, postdated checks represent a receivable from the employees.
d. Requiring cash register clerks to make up any cash shortages from their own funds gives the clerks an incentive to shortchange customers. That is, the clerks will want to make sure they don’t have a shortage at the end of the day. In addition, one might also assume that the clerks can keep any overages. This would again encourage clerks to shortchange customers. The shortchanging of customers will create customer complaints as well as other issues. The best policy is to report any cash shortages or overages at the end of each day. If a clerk is consistently short or over, then corrective action (e.g., training or removal) could be taken.
g. The mail clerk should prepare an initial listing of cash remittances before forwarding the cash receipts to the cashier. This establishes initial accountability for the cash receipts. The mail clerk should forward a copy of the listing of remittances to the accounts receivable clerk for recording in the accounts.
h. The bank reconciliation should be prepared by someone not involved with the handling or recording of cash.