Finanical Accounting

Kelvin Allen

Instructor Dr. Ana Machuca

Financial Accounting ACC 557

February 5, 2011

On the basis of the review and analysis of internal controls carried out for Manhattan Company, following weaknesses were observed in the internal control system. As the new auditor for the CPA firm of Croix, Marais, and Kale, the following measures are recommended:

On receiving the mail, it is opened either by the cashier or by the employee who maintains the accounts receivable records. As per our recommendation, at least two persons must be present when the mail is opened. In order to make the employees accountable for their respective tasks, it is advised that the duties are not shared but divided. Since any particular job is not accomplished by one single person, any misappropriation of funds becomes difficult as there is an automatic cross check performed. As per the observations made, checks are promptly endorsed “For Deposit Only,” and the person opening the mail prepares no list of the checks. Maintaining the details of the amount received, the payer, purpose of payment and such other details is important in order to establish an audit trail.

Moreover, the receipts are deposited weekly into the bank by the cashier. Deposits on a more frequent basis are advised. This would reduce the exposure to theft or pilferage. As long as the deposits stay in the custody of the company, proper measures should be taken to safeguard it. There should be a third party involved who should be responsible to reconcile the figures obtained with those in the general ledger. An identification number or code must be provided so as to distinguish receipts from each other making a reference to such number or code as and when an accounting entry is made. This would provide a reasonable basis for any future reference or corrections. Interdepartmental transfers should be kept at a minimum as it increases the chances of any misappropriation...