Internal Cash Control
Axia College of University of Phoenix

Scenario E4-5
Idaho Company
The Idaho Company scenario presents few weaknesses in internal control over cash disbursements. The first weakness comes obvious when they do not have pre-numbered checks and the more than one person has access to them, in this case two employees, the treasures and the purchasing agent, both have access to unissued checks. Additionally checks are kept in an unsecured (unlocked) file cabinet.
Another weakness is that the Idaho Company does not require two have both signees sign the checks and only one person able to issue checks; on the contrary they both can issue checks.
When it comes to checks and balances on procedures, only the purchasing agent is verifying the accuracy of the invoices and the sole checking account is only reconciled by one person; this creates a conflict of interest, additionally all the paid invoices get stamped with the word "paid” on the paper copy before the invoice is filed away.
The recommendations that I would submit to the following:
Establishment of responsibility: I will require having only one person responsible, that person will be entrusted with the key to the file cabinet in which the unissued checks are stored.
Physical, mechanical, and electronic methods: I recommend that Idaho Company should immediately order pre-numbered checks. If this does not happen, checks can be taken and not accounted for because there is no numbering sequence. A safe with combination only accessible by two people: the treasurer and the president or general manager of the company.
Segregation of Duties: Both the purchasing agent and the treasurer will verify the accuracy of vendor bills prior to payment. The accuracy of the vendor bills will again be verified by a third employee. After the triple verification process, checks will be issued and both the purchasing agent and the treasurer will match the amount of the checks to the amount of the invoices. Currently only the purchasing agent is the only person verifying accuracy of the invoices, authorizing payment, and verifying that products received are being billed accurately.
Document procedures: Other than the acquiring pre-numbered checks, Idaho Company may want to consider a separation of cash and documents for the reconciliation invoices and payments. Two separate locations with no access to each other’s information will keep documentation in place.
Also effective immediately, each and every check will require two signatures. Both the purchasing agent and the treasurer will verify the accuracy of vendor bills prior to payment. The accuracy of the vendor bills will again be verified by a third employee; (as mentioned above), after the treasurer reconciles the checking account, the purchasing agent and a third employee should be able to verify that the treasurer has not missed any items and that the reconciliation is correct.
Independent Internal verification: Not only should invoices be stamped as paid, but the date they were paid along with the check numbers and authorizing names should be recorded. Additionally security cameras in the area, computers with protected passwords, and random cash balance checks to the banks issue to employees, this includes pre-numbered checks.
Scenario P4-1A
Guard Dog Company
The Guard Dog Company scenario is the contrary of the previous scenario as it has all checks and balances in place. The Guard Dog Company has all of the five basic principles for cash management implemented and all principles are being used to the company’s advantage. For example; by requiring all checks to be pre-numbered and written using the company's newly purchased check writer, the Guard Dog Company is using physical, mechanical, and electronic controls. Segregation of duties is exercised because the two people who approve the invoices are different from the persons who sign the checks. Independent internal verification is used when multiple people verify the accuracy of invoices. Documentation of procedures is used when additional information is written on the check after it is stamped “paid”.
I do not have any further recommendations other than bringing an independent audit company to verify the efficiency of the practices in place and the make recommendations in case there will be anything the Guard Dog Company needed to account for.
Scenario P4-2A
Church scenario
This scenario involving the church has the biggest challenges, not only because procedures are not in place but also because internal cash control is being deal without the care and urgency it requires. There are several weaknesses and some are presented in the next paragraphs:
The way the church is operating is all fashioned and this is not necessarily a good thing when it comes to handling cash. For instance: there is no audit procedure and the board of trustees is not at all involved in the collections and recordkeeping procedures.
Additionally the people in charge of collecting the donations during service have been there for 15 years and operate out of trust one hundred percent, as there is no accountability or checks and balances in place, furthermore the church does not carry any fidelity insurance.
The financial secretary has been in place for an excessive period of time. Since there has been no audit, there is no way to tell if the financial secretary is as trustworthy as the church feels he/she is. Also the fact that no one is remaining with the head usher as he counts the cash received and that absolutely no one is verifying his count is terribly wrong.; there are not other witnesses as to the amount of the count, so I believe there should be a detailed note with the date, the amount collected, (cash or checks), the usher's signature and a there should be a count by a second person along with the date and their signature.
Another disturbing practice in this scenario is that members of the church, for whatever reason, are being asked to write out the checks they contribute as “payable to cash”; this is inconceivable, as these checks can basically be cashed by anyone at any given time. The church should change this practice and asked members to write all checks be payable to the church only.
Another issue is that the financial secretary is the only person reconciling the bank statements and because the financial secretary is both reconciling the bank statements and keeping church records, there is no way to tell if balances, deposits, or anything else is accurate. This should not be done and segregation of duties should exist.
There are many recommendations to make to this scenario: Beginning the head usher, this person should have other ushers with him/her while the collection gets count; once this is done the count should be verified by two more ushers. The head usher should sign the notation with the amount counted and get another usher to sign, verifying that the amount is correct. After that, the financial secretary should recount the collection and sign the note that the usher left, verifying that his/her total is the same. Two copies should be made, one should be filed and another copy should be presented to the board of trustees. The financial secretary should have a set amount of cash to withhold and deposit everything else, getting away from the “$150 to $200 depending scenario”. The cash expenditures should be set prior and revisit often.
The finance committee should: Approve all cash expenditures; view the signatures, and the amounts of each collection. Should view the bank statements and the reconciliation; appoint someone else to verify the reconciliation.
Several church policies should be changed immediately to improve internal control. Independent internal verification should be used in all cash matters. Segregation of duties should be put into place and someone besides the financial secretary should make the deposit. Also, the financial secretary and the newly appointed bookkeeper should be bonded and insured.
The five basic principles of cash management are the guide to prevent or deter improper handling of any company’s assets, especially cash as it becomes a matter of proper handling it once gets to the company; these principles are the check and balances for all employees as there is a need to avoid theft and dishonesty, and also can help if there is ever and outside audit. Cash is valuable and having and accurate and precise operation when it comes to cash handling will increase financial accuracy of the business.