When the employee at the turnstile collects cash for daily sees, he or she also has the visitor complete a waiver form. The employee then deposits the cash in a locked box and files the forms. At the end of each day the Recreation Center accountant collects the cash box, opens it, removes the cash, and counts it. The accountant then gives a receipt for the cash amount to the employee on turnstile duty. The accountant takes the cash to the bank each evening. The next morning, the accountant makes an entry in the cash receipts journal for the amount indicated on the bank deposit slip.
Susan Porno, the Fairfax Recreation Center General Manager, has some concerns about the internal controls over cash. However, she is concerned that the cost of additional controls may outweigh the benefits. She decides to ask the organization’s outside auditor to review the internal control procedures and to make suggestions for improvement. Assume that you are the outside auditor. Indicate weaknesses in the existing internal control system over cash admission fees and recommend one improvement for each of the weaknesses you identified. Organize your answers as follows: 9-15.
Identify one or more control procedures (either general or application intros, or both) that would guard against each of the following errors or problems. A. Leslie Thomas, a secretary at the university, indicated that she had worked 40 hours on her regular time card. The university paid her for 400 hours worked that week. Apply a separation of duties control. The data processor will input the hours worked and that can be verified by the accounting manager for accuracy. Another control that can be added to this is to establish a limit in the ASS for total hours worked so that no value above that number can be inputted.
This will attract from more hours worked being inputted in the first place. B. The aging analysis indicated that the Grab and Run Electronics Company account was so far in arrears that the credit manager decided to cut off any further credit sales to the company until it cleared up its account. Yet, the following week, the manager noted that three new sales had been made to that company?all on credit. Utilization of administrative controls would work in this instance. When designing the IS, there should be the ability to note an account for lack of payment and temporarily suspend the account until necessary action is taken. The Small Company employed Mr.. Finesse Eyeshade to perform all its accounts receivable data processing. Mr.. Eyeshades 25 years with the company and his unassuming appearance helped him conceal the fact that he was embezzling cash collections from accounts receivable to cover his gambling losses at the race track. The duel observation control and separation of duties would work here. Have two people document the receivables as they come in and have Mr.. , Eyeshades reconcile the accounts based off of that. D. The Blue Mountain Utility Company was having difficulty with its customer payments.
The payment amounts were entered directly into a terminal, and the transaction file thus created was used to update the customer master file. Among the problems encountered with this system were the application of customer payments to the wrong accounts and the creation of multiple customer master file records for the same account. The ASS should incorporate an unbound record test and also a check digit control procedure. This will ensure that the account number being entered is correct and that no other file has been produced. E. The Langford brothers had lived in Center County all their lives.
Ben worked for the local mill in the accounts payable department, and Tom owned the local hardware store. The sheriff couldn’t believe that the brothers had created several dummy companies that sold fictitious merchandise to the mill. Ben had the mill pay for this merchandise in its USIA fashion, and he wrote off the missing goods as “damaged inventory. ” Ben does not appear to be a manager, so there should be a separation of duties with in the accounts payable department. The documents should be prepared by Ben, but should also be verified by a manger.
There should also be internal audits that would bring to light any redundancies on approving officials or names within the organization. 9-16. Identify one or more control procedures (either general or application a. A bank deposit transaction was accidentally coded with a withdrawal code. Feedback mechanism in the form of a receipt will identify this incident. The use of an edit test would check for b. The key-entry operator keyed in the purchase order number as a nine-digit number instead of an eight-digit number. ASS should have a check for the number of digits in that field.
If the field is only 8 sits then it should be formatted not allow for anything more or less. C. The date off customer payment was keyed 2001 instead of 2010. A feedback mechanism such as a payment slip/receipt would be used to verify the information. Also, a reasonable test would be appropriate to ensure that the date is not past a certain value. D. A company employee was issued a check in the amount of -$135. 65 because he had not worked a certain week, but most of his payroll deductions were automatic each week. An edit test of sign…. Meaning ensuring that the value was a positive umber…. Ejecting a negative value in the payroll system. E. A patient filled out her medical insurance number as 123465 instead of 123456. Edit test of reasonableness… The insurance number field would have to fall within a valid range of values to be accepted. F. An applicant for the company stock option plan filled out her employee number as 84-7634-21. The first two digits are a department code. There is no department 84. Unbound record test would work for this. If the master file is not found for department 84 then the master file would reject the transaction. G.
A high school student was able to log onto the telephone company’s computer as soon as he learned what telephone number to call. The use of biometrics wouldn’t allow the student just to know a phone number and be able to log onto computers h. The accounts receivable department sent 87 checks to the computer center for processing. No one realized that one check was dropped along the way and that the computer therefore processed only 86 checks. A batch control document with a list of all the checks that need to be processed is appropriate. On the document will also contain a total dollar amount of all the checks.
