While at the counter, the customer can see other employees making the pizzas and the large ovens in which the pizzas are baked Instructions: Identify the six principles of internal control and give an example of each principle that you might observe when picking up your pizza. Note: It may not be possible to observe all the principles. ) 1st Principle – Establishment of responsibility * Only one person is responsible for a given task. * For example, the cashier that exchanges the pizza for cash would be the principle of establishment of responsibility.
2nd Principle – Segregation of duties.
Accounting employees balances books * Another personnel has custody of cash on hand (making deposits) * In this principle- segregation of duties one cannot observe this principle in this scenario. th Principle – Documentation procedures * Pre-number documents or invoices * For example, the cashier has pre-number receipts for each order that is picked up by the customer. At the end of the clerk’s shift these invoices are forwarded to accounting to timely record each transaction.
5th Principle – Physical mechanical and electronic controls * Consist of having safes, deposit boxes, and time clocks for time worked. * The clerk has a cashier that controls and safeguards the assets to enhance the accuracy and reliability of the accounting records. th Principle – Independent internal verification * Employees review, compare, and reconcile data that was prepared by them.
Three measure are recommended: * An example cannot be provided for this principle because a customer cannot identify if: * 1st – Org. should verify records periodically or on a surprise basis.
* 2nd – A manager should make the verification of an employee * 3rd – Discrepancies and exceptions should be reported to mgt. to make appropriate corrective action. Chapter 7: Problem Set B: P7-2B
The board of trustees of a local church is concerned about the internal accounting controls pertaining to the offering collections made at weekly services. They ask you to serve on a three-person audit team with the internal auditor of the university and a CPA who has just joined the church. At a meeting of the audit team and the board of trustees you learn the following: A) Indicate the weaknesses in internal accounting control in the handling of collections. There are a few weaknesses in internal control in the handling of collections for the church, such as there is no supervision when the ushers take money.
There is a chance that the ushers can take money from the collection plate. In addition, the financial secretary manages three tasks like bank reconciliation, has control and has custody of the cash, and maintains the church records. Moreover, the financial secretary holds out cash ($150-$200) per week; different withhold amounts for cash expenditures. There is not a witness when the head usher or the financial secretary count the money. Last, checks are made payable to cash (Kimmel, Weygandt & Kieso, 2007).
B) List the improvements in internal control procedures that you plan to make at the next meeting of the audit team for: Ushers: How churches handle usher operations varies from congregation to congregation, but a consistent set of controls protects the fiduciary integrity of the church, and creates confidence among donors. One problem in the collection process is that only the head usher counts the collection without any accountability to ensure his count is accurate, or that all of the funds donated are transferred to the safe.
This can be resolved by having the other ushers count the donations and sign off on the report, so that more than one set of eyes have verified the donations. Additionally, volunteers will need to take a course familiarizing would-be ushers with standard operating procedures, and reporting standards before being qualified to volunteer for usher position. This will help solidify controls for the ushers. Head Usher: While the church may not be currently experiencing anything wrong with the usher selection and volunteer system at the church, some improvements might be considered.
The church might consider making the head usher a year-long term, elected by church members to create continuity, but also impose term limits – possibly every 3-4 years a head usher must take a sabbatical. Additionally, because the head usher role is so pivotal in the collection process, and it is a place where mistakes or malfeasance can easily take place; it would be helpful for the ushers and the financial secretary to be present in the collection counts, the day of, so someone outside the usher department can verify tithe counts.
Financial Secretary: The most glaring issue, which opens up easy access for, would be embezzlers in the congregations check policy. All checks being written to cash basically enables anyone to cash out the check, the church, a rouge employee or volunteer, or otherwise. All checks need to be made out to the church, not to cash. It would be even better if the church went the route of many churches by allowing donors to have donations processed monthly (or weekly depending on donor preference) through e-commerce, allowing debit or credit payments to be made automatically to the church account.
This will add a layer to the recording process, but it also increases security for donors. The financial secretary also needs to stop pulling cash from weekly donations for cash expenditures as cash transactions are harder to track and thus are more easily abused. Instead a petty cash account needs to be started, and cash allocated as needed based on historical records of cash expenditures. Additionally, a church credit/debit card, or reimbursement policy greatly will diminish the need for high levels of cash in the petty cash account.
Finance Committee: The first thing the finance committee needs to do is to follow its own policy, and conduct annual audits. The church’s 501 (C)(3) nonprofit designation demands this. Often the most “trusted” employees are the ones who are found to have committed improprieties. Regardless of trust, regular audits, and reporting is essential. The second major priority is for the financial committee to purchase a fidelity insurance policy that will protect the church in the case of financial impropriety or massive fraud on part of those who handle finances.
In addition to the need for an overhaul in policy (discussed below), the financial committee needs to inculcate a culture of financial vigilance and rigor to keep the church from even the perception of financial impropriety. C) What church policies should be changed to improve internal control? The church board of trustees is responsible of make sure that the church runs smoothly, from assigning the right ministers to the right ministries and making sure that the tithes and offerings are accounted for after each service.
The first and most important thing that the church needs to do is getting some fidelity insurance. This type of insurance will protect the church of losses that may result of fraudulent acts by specified individuals. Protecting the church of any dishonest employee or member who may steal money, securities, and other property that once belong to the church. The second thing is to have an audit conducted because there has not been an audit performed in 15 years. Highly recommend using an outside source of performing the audit, this way every rock and stone will be turn over.
The church financial management department should be responsible for counting and recordkeeping of the tithes and offering received but in separate offices, one office for counting the money and the other office for recordkeeping purposes The head usher responsibility should be making sure that the tithes and offering plates are accounted for and immediately delivering the plates (with one member from the board of trustee) to the financial management office (the financial office manager, and one individual from the board of trustees are the only ones with keys to both offices).
The financial management recordkeeping personnel and the financial secretary should first come to an agreement on how much cash is needed for the week expense. Also the two will count the money with the intention to be deposit along with a deposit slip; the financial secretary will be responsible of making the deposit and afterward returning the deposit receipt to the recordkeeping office for recording purposes.