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    Internal Control Procedure

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    Could you help me to understand these sample questions please.

    1. Culotti's Pizza operates strictly on a carryout basis. Customers pick up their orders
    at a counter where a clerk exchanges the pizza for cash. While at the counter, the
    customer can see other employees making the pizzas and the large ovens in which the
    pizzas are baked.
    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.)
    The six principles of internal control are:

    1a. Establishment of responsibility - In this particular case the responsibilities lie with the cashier that takes the money and the kitchen staff in full view of the customers when they enter the establishment.

    2b. Physical, mechanical, and electronic controls - In the restaurant the cash is taken from the customer and put into a register by one of the employees keeping that cash relatively safe from the customers.

    3c. Segregation of duties - Again the people making the pizzas don't handle the cash that they get from the customers but the person that handles the finished pizza does take the cash from the customer. This could lead to easy theft by that employee if they decide to pocket the money and not ring up the pizza or ring up the pizza at a reduced price and pocket the difference.

    4d. Independent internal verification - The only visible internal verification is that of the employees policing themselves. The kitchen workers are in plain sight of the other workers who are then in plain sight of the customers.

    5e. Documentation procedures - I am assuming that there is some sort of receipt given to the customer at the time of the sale that documents the transaction for the customer and for the business itself although there was no mention of it in the brief description given by the text.

    6f. Other controls - In this particular example there is no way to tell if the employees are rotated out of the kitchen and onto the register so there is no way to know if there are any other controls in action.

    2. 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.
    1a. The church's board of trustees has delegated responsibility for the financial management
    and audit of the financial records to the finance committee. This group prepares
    the annual budget and approves major disbursements but is not involved in collections
    or recordkeeping. No audit has been made in recent years because the same
    trusted employee has kept church records and served as financial secretary for 15
    years. The church does not carry any fidelity insurance.

    2b. The collection at the weekly service is taken by a team of ushers who volunteer to
    serve for 1 month. The ushers take the collection plates to a basement office at the
    rear of the church. They hand their plates to the head usher and return to the church
    service. After all plates have been turned in, the head usher counts the cash received.
    The head usher then places the cash in the church safe along with a notation of the
    amount counted. The head usher volunteers to serve for 3 months.

    3b. The next morning the financial secretary opens the safe and recounts the collection.
    The secretary withholds $150 - $200 in cash, depending on the cash expenditures expected
    for the week, and deposits the remainder of the collections in the bank. To facilitate
    the deposit, church members who contribute by check are asked to make their
    checks payable to "Cash."

    4c. Each month the financial secretary reconciles the bank statement and submits a copy
    of the reconciliation to the board of trustees. The reconciliations have rarely contained
    any bank errors and have never shown any errors per books.

    (a) Indicate the weaknesses in internal accounting control in the handling of collections.

    (b) List the improvements in internal control procedures that you plan to make at the
    next meeting of the audit team for (1) the ushers, (2) the head usher, (3) the financial
    secretary, and (4) the finance committee.

    (c) What church policies should be changed to improve internal control?

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    Solution Preview

    756 Words, APA References

    Internal Control Procedure


    Internal control can be defined as a plan of the organization to ensure the achievement of objectives by the prevention and detection of frauds and errors. In Culotti's Pizza, six principals of internal control are given in the following manner -

    a). Establishment of responsibility - In the case of Culotti's Pizza, responsibility can be established for the clerk as he takes the money from the customers. The responsibility for the kitchen staff can also be established because customers can see to them making the pizzas. So, it is there responsibility to follow a well procedure of making pizza.

    b). Physical, mechanical, and electronic controls - In the restaurant, cash collection and data entry in register is done by the single person that makes the control on the physical and electronic devices for the company.

    c). Segregation of duties - All the employees of the restaurant have different duties. The peoples, who are making pizza, are handling the duties of preparing pizza. There is no involvement of them into cash collection from the customers. But it can tend to a bad habit for the employees. The employees can sell the pizza at a lower price and ...

    Solution Summary

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