Two Symbols Cash Paraphrase This File Please
The following is the description of cash disbursements system of Two Symbols Limited:
Upon receipt of the documents from accounts payable department, the cash disbursements clerk files the documents until their payment due date. On the due date, the clerk prepares a cheque for the invoiced amount, which is sent to the treasurer who signs it and mails back to the supplier.
The cash disbursement clerk then updates the cheque register, accounts payable ledger, and accounts payable control account from the clerk’s terminal. Finally, the clerk files the invoice and copy of purchase order, receiving report, cheque in the department.
Required: Describe the internal control weakness in Two Symbols’ cash disbursements system and discuss the risk associated with the weakness. (10 marks, maximum 300 words)
Internal Control Weakness refers to failure in the implementation or effectiveness of internal controls system. This weakness can be defined by problems associated with incorrect recognition of revenue, lack of segregation of duties, noncompliance of accounting policies, etc.
As per the facts given, clerk of Two Symbols Limited receive the documents , prepare the cheque of invoice amount, updates the cheque register, accounts payable ledger, and accounts payable control account from his terminal and finally files the invoice and copy of purchase order, receiving report, cheque in the department.
There is no maker and checker in entire system and thus prone to multiple risk like paying a vendor twice on same invoice if clerk made some manual mistake in the accounting, carrying out responsibilities which are inconsistent with the management expectations and desires, unauthorized or false payments . Here, types of weakness and risk involved may include:
1. Segregation of duties of Authorizing and processing of Cash Disbursement: Clerk authorized the liabilities and also process payment
a. Weakness: Clerk authorizes the liability and writes the check to pay it.
b. Risk: The clerk could create a false vendor, set up a liability and disburse funds
c. Control: Segregation of duties between the tasks of authorizing a liability and processing the payments.
2. Segregation of Duties at the time of Account Keeping: Clerk makes payment also update the account payable ledger
a. Weakness: Clerk has access to both the vendor ledger and the general ledger.
b. Risk: Balancing general ledger control accounts with corresponding vendor ledgers can help detect certain types of errors and irregularities like if mistakenly invoice booked twice or paid twice. This ability is lost when the same individual is responsible for updating both accounts.
c. Control: Segregation of duties so that no financial statement is handled by the single person from beginning to end.
3. Independent verification:
a. Weakness: Clerk sets up a liability based solely on the vendors invoice.
b. Risk: The Company may be paying for things it did not order, did not receive or use, or is paying too high price to a person who is somehow related to the Clerk.
c. Control: The clerk should perform a three-way-match of the purchase order, receiving report, and invoice to verify that the liability is legitimate and correctly stated and correctly priced