Question

Required: Choose one of the items listed below (you may not choose an item someone else has responded to unless all of them have been addressed.) Include the number of the item in the subject line of your posting. Indicate whether there are any Internal Control violations in the item. If there are, make a suggestion of how to improve the process. Select Company is a retail company that sells plumbing supplies. It has both cash sales and sales on account. The procedures Select uses to handle cash and checks received for payments on account are described below:

#4 The mailroom prepares a list of all the checks received for a day and files it in a mailroom filing cabinet. No duplicate list is made.

Answer 1

In this case there is an internal control violation. As no duplicate list is made there are no adequate documents and records being kept here. Adequate documents and records are required for control activities. Control activities refer to the policies and procedures that management has established to meet its objectives regarding financial reporting.

The process can be improved by making a duplicate list by the mailroom. The mailroom should then provide this duplicate list to the accounting department which can then tally its accounts receivables account on the basis of this list and record payments from debtors from whom the checks are received. In this manner the books of accounts will be up to date for the company and its accounts receivables will have no discrepancy.