Answer to Question #277434 in Accounting for Darcie

Question

Indicate whether there are weaknesses in the organization’s internal control system. If there’s any, discuss the weaknesses identified and suggest ways to address these.

1. The proprietor’s brother serves as an accountant and a cashier at the same time.

2. Operating expenses are paid primarily through checks, except for small amount payments.

3. Cash receipts are not deposited to banks until the next morning because the cashier is too busy.

4. Each and every payment must be approved according to the company’s line of authority.

Answer 1

Solution:

1.). There are weaknesses in the organization’s internal control system – Lack of segregation of duties, that is, the same person handling multiple tasks in the company which may encourage theft. The company should separate duties and not have one person performing numerous tasks. Also, the company should not appoint relatives in some vital positions to avoid being taken advantage of.

 

2.). This is a robust internal control system as it limits or prevents theft or misappropriation of funds.

 

3.). This is a weakness in the company’s internal control system – Failure to immediately post the cash received can expose the company into other risks such as theft and loss of cash. It is very critical for any cash received to be banked on the same to prevent any theft or loss and for easy accountability.

 

4.). This is a robust internal control system as it ensures no illegal payments are done. It controls the whole payment process making everything easy to understand.