Accounting, Senior: Analysis of internal controls

Question 1

Title:

Answer 1

Evaluation of the Internal Controls over Cash (and Credit)

Question 2

Introduction: Internal controls definition

Answer 2

Internal controls safeguard the assets of a business through the implementation of administrative and accounting procedures. The aims of the internal controls are to prevent theft and fraud; prevent errors from being made in the first place; detect errors if they are made and increase efficiency.

Question 3

Introduction: Accounting and administrative controls

Answer 3

There are Accounting and Administrative controls which should exist in a business. Some of these include Separation of duties; Physical controls and Sound accounting practices. Each of these will be explained in this report. In this report the internal controls over cash that are presently being addressed and those that require attention to improve the current situation will also be addressed.

Question 4

Sound accounting practices:

Answer 4

Practices of check and balance allow for control and security over all types of accounts. Accuracy of accounting records, physical condition and location should be checked both routinely and randomly. Sound accounting policies and practices aid internal control in a business.

Question 5

Separation of duties:

Answer 5

The duties of staff should be separated so that employees work acts as a check for work done by another. It minimises chance of theft and fraud as collusion would have to happen for this to occur.

Question 6

Physical Controls:

Answer 6

Safeguard financial records and assets of the business by using safes and secured storage areas inside locked buildings, keeping keys secured, employing surveillance equipment and security staff. Access for authorised personnel should be restricted.

Question 7

All cash received should generate a source document:

Answer 7

• Provides verifiable evidence
• Documents should be pre-numbered in consecutive order
• The actual cash received should equal documented amount.

Question 8

All cash should be banked intact daily:

Answer 8

• No payments made out of day’s receipts

Question 9

All cash kept on premises should be safeguarded:

Answer 9

PHYSICAL CONTROL

• Cash for floats and petty cash should be kept under lock and key
• restrict access to authorised personnel

Question 10

All payments made by cheque:

Answer 10

CHEQUE BUTT: little bit left behind in cheque book.

• The cheque butt is documentary evidence for ausiting process.
• Cheque butt allows verifying payment against invoices and statement
• Cheques need to be signed by a minimum of two authorised personnel
• Cheques crossed “Not Negotiable”

Question 11

Cancelled receipts and cheques should be kept:

Answer 11

• These documents are marked cancelled and kept for auditing purposes,

Question 12

Division of duties:

Answer 12

• Receipts and payments should not be handled by the same person
• Cashier banks money and is not responsible for any accounting records.
• Separates the handling and recording of cash

Question 13

Rotation of duties:

Answer 13

• Employees are discouraged from committing fraud.
• Allows for discover of unusual entries and errors
• Multi-skilling
• No deviation from sound accounting practices.

Question 14

Regular checks via bank reconciliation

Answer 14

• Business records compared with independent record.

- Separate person complete this check.

Question 15

Credit policy:

Answer 15

• Assists in controlling credit
• Ensures ascertaining the credit worthiness of potential customers.
• Ensures well planned credit procedures are in place.