Cash And Internal Control – Case Study Example
CASH AND INTERNAL CONTROLS ID Number: of of School Word count = 594 Date of Submission: September 28, 2011
Memorandum: CASH AND INTERNAL CONTROLS
For: The Proprietor of Canyon Rental
From: your name (name of student)
Subject: Cash and Internal controls
I have made a number of observations on the store operations on various days at various times in order to determine what are the deficiencies of a current system in running this store and my findings are summarized below in order to strengthen internal control measures. It is highly suggested the recommendations be implemented to avoid errors and fraud (Eisen, 2003, p. 107).
Observations – purchase orders and sales invoices are not pre-numbered consecutively; as such, there is no way to keep track of all transactions if each one of these are properly being recorded in the books of accounts. The lone sales clerk handles all the related transactions such as preparation of the sales total (based on the cash register slip); fills out a bank deposit slip and then makes the deposit herself. The same sales clerk grants discounts based on her discretion and furthermore, also gives sales returns in case of defective merchandise. The bookkeeper has been working for almost three years straight without taking a single day off for vacation. The manager in charge of purchases makes all orders to suppliers and at the same time, also approves payment for the same orders once the merchandise ordered arrived in the store. The store owner himself just merely signs the bank checks and affixes his signature for payment to the suppliers without any accompanying supporting documents such as delivery receipts and payment vouchers. This entire system is full of loopholes as there were no sufficient cash internal controls in place at the time of the store observation. An inventory control system is also lacking to monitor stocks.
Recommendations – these should be implemented immediately in order to preserve any cash revenues generated from store sales each day. The recommendations are enumerated below based on the weaknesses being observed and the solutions to each problem are stated for each.
1. In the absence of pre-numbered forms (purchase orders and sales invoices), use interim measures that can be adopted in the meantime until such time all numbered forms will arrive. Adoption of a simple tracking system such as writing down each sale on the notebook or ledger for purposes of record keeping be instituted immediately. This will apply to inventory purchases as well as to each cash sale. At the end of each day, these will be reconciled with the tally of the cash sales based on the cash register slip.
2. Cash counting – counting the total of cash sales should be done by two persons, at least. The sales clerk merely prepares the sales total but another person will be the one to prepare the bank deposit slip who will make the actual cash deposit to the bank.
3. Granting of discounts and sales returns – another person should be designated to deal with merchandise returns in case of defective items and customer complaints. This will prevent the cash clerk from manipulating the actual amount of the cash returned.
4. The bookkeeper (Betty Gamble) – she should be asked to take mandatory leave of absence (vacation with pay, if she is entitled to it) in order to let other persons handle her job and see if there are no anomalies. Personnel rotation is a usual procedure.
5. Signing of Checks – the proprietor must sign bank checks only if there are some documentation attached to it, such as payment vouchers and delivery receipts of goods. It will help to prevent any payments for fictitious deliveries or any supplier overpricing.
Eisen, P. J. (2003). Chapter 7: accounting for cash – special controls. Accounting the easy way (4th ed.). Hauppauge, NY, USA: Barrons Educational Series.