ACCOUNTING INFORMATION SYSTEMS REPORT TASK 4

INTERNAL CONTROL ANALYSIS 1

Problem : Explain how the principle of separation of duties is violated in each the following situations. Also suggest one or more procedure to reduce risk, and exposure highlighted in each of example. Solving Problems: a. A payroll clerk recorded 40-hour workweek for an employee who had quit the previous week. He then prepared a paycheck for this employee, forged her signature, and cashed the check. Violation: The payroll clerk only have an authority to prepare the paycheck, not to signature or cashed the checks. The signature of payroll is the duty of HR manager, while cashed the paychecks is the duties of the cashier, so, the payroll clerk has violated his/her job description and his/her authorities. Solution: To reduce the risk, the company must make a clear workflow, the payroll clerk must be ensured only has an authority to make the paycheck, then from the payroll clerk, every paycheck must be received to HR manager to check it, if its agreed, then from the HR, it will brought to finance department, and it must be received by the A/P department first, the A/P department will make the invoice for the payment and then its delivered to finance manager for the second check point. After the finance manager agree, then the cashier will make the check for the payment. Before the check is cashed, the cashier must have the assignment first from the finance manager. With this workflow, it can reduce the risk which is cause with the problem above.

b. While opening the mail, cashier set aside, and subsequently cashed, two checks payable to the company on account. Violation: Cashier should be able to separate the things. Cashier has no right to make an invoice Solution Company should have a difference among the employees jobs. The invoice must be prepared by A/P staff c. A cashier prepared a fictious invoice from a company using his brother-in laws name. He sent an electronic payment for the invoice to his brother in law. Violation: Cashier is not have a right to make an invoice, the invoice must be prepared by A/P staff, and the cashier can not make a payment before they got the assignment from the finance manager, there is no clear job description in this problem. Solution: To avoid this problem, the company must be make sure that the right to make an invoice must be in A/P department. Then the system which is used must be online and connected to every department in finance, it must be connected to cashier, to purchasing, to cash control, and to book keeping department. Every invoice must be has a clear number of invoice, so if the cashier trying to make fictious invoice it can be checked easily in A/P department from the invoice number, and it will be proved fictious because in the A/P department theres no data about the invoice which is fake and made by the cashier. And every invoice must be received by the finance manager first if the company wanna make a payment to anyone, so the cashier will not able to make an electronic payment if the invoice not be delivered to the finance manager first, and the finance manager can check the invoice to the A/P department, so it can easily known if the invoice is fake. d. An employee of finishing department walked off with several parts from the store room and recorded the items as having been issued to the assembly department.

Violation: The things have been recorded are not able to be recorded twice. Because it will affect the other things Solution: There must be a control of accounting records in the specific accounts. There should not have a fraud in the record e. A cashier cashed a check from a customer in payment of an account receivable, pocketed the cash, and conceal the theft by properly posting the receipt to the customer account in the accounts receivable ledger. Violation: This is a fraud problem. The cashier has violated the ethics of work with do this. This problem probably can happen because of the weak internal control, theres no tight controlling in cash receiving, so the cashier can do this. Solution: There must be a cash check every the end of the month, in the journal and ledger, when that fraud cashier staff posting the receipt to the customer account in the A/R, the journal will be cash in debet to A/R in credit. This means there are money in to the company so every month we can calculated the amount of money we received and the A/R that has been liquidated become cash and we can see if the money that we have received is it equal or not with the amount of A/R that has been liquidated become cash. If thats not equal, it will be the cashier staffs responsibility to prove whats happen to the money.