The following control procedures are used in Albina's Boutique Shoppe for cash disbursements.
1. Each week Albina leaves 100 company checks in an unmarked envelope on a shelf behind the cash register.
2. The store manager personally approves all payments before signing and issuing checks.
3. The company checks are unnumbered.
4. After payment, bills are "filed" in a paid invoice folder.
5. The company accountant prepares the bank reconciliation and reports any discrepancies to the owner.
(a) For each procedure, explain the weakness in internal control and identify the internal control principle that is violated.
(b) For each weakness, suggest a change in the procedure that will result in good internal control.
Internal Control Procedures
a. Identify the weakness
1. Checks and other such financial documents should be secured, not left lying around
2. It would be too easy to defraud the store with one person approving and signing checks
3. Check stock should always be numbered so as to ...
For each of the five procedures, the solution demonstrates the weakness in the method including the possible consequences of the weakness. In the second part, a suggested 'fix' is listed for each of the five.