The mailroom employees send all remittances and remittance advices to the cashier. The cashier deposits the cash in the bank and forwards the remittance advices and duplicate deposit slips to the Accounting Department.
1. Indicate the weak link in internal control in the handling of cash receipts.
Answer : Both the remittances and remittance advices are sent to the cashier.
2. How can the weakness be corrected?
Answer : Have the mailroom send the remittance advices directly to the Accounting Department.
Expert Explanation
1. Indicate the weak link in internal control in the handling of cash receipts:
The weak link in the internal control system is that the cashier is responsible for both depositing the cash in the bank and forwarding the remittance advices and duplicate deposit slips to the Accounting Department. This creates a risk of fraud or error because there is no independent verification of the amounts deposited.
The weak link in the internal control system is that the cashier is responsible for both depositing the cash in the bank and forwarding the remittance advices and duplicate deposit slips to the Accounting Department. This creates a risk of fraud or error because there is no independent verification of the amounts deposited.
2. How can the weakness be corrected?
The weakness can be corrected by implementing segregation of duties and independent verification.
The weakness can be corrected by implementing segregation of duties and independent verification.
Here’s a specific way to improve the internal control:
Segregate Duties: The duties of handling cash and verifying the deposits should be segregated. Instead of the cashier being responsible for both tasks, a different employee or department should be involved in the verification process.
Independent Verification: After the cashier deposits the cash in the bank, an independent employee from the Accounting Department or an internal auditor should reconcile the remittance advices with the bank deposit slip. This employee should verify that the amounts on the remittance advices match the amounts on the deposit slips.
Dual Control: Implement a dual control system where two employees from different departments are required to handle different parts of the process. For example, one employee in the mailroom could prepare the remittances and remittance advices, another employee (the cashier) deposits the cash, and yet another employee in the Accounting Department verifies the deposit slips against the remittance advices.
Regular Audits: Conduct regular, unannounced audits of the cash handling and deposit processes to ensure compliance with internal controls and to detect any discrepancies.
By implementing these measures, the internal control system will be strengthened, reducing the risk of errors and fraud in the handling of cash receipts.
