- 10 Marks
Question
In a medium-sized trading organisation, the accountant was given the additional responsibility of pursuing recoveries from debtors. On one occasion, when an insurance claim of N1 million was received, the accountant credited it to the account of a debtor to cover up a previous misappropriation of N1 million he had recovered in cash from the debtor.
Required:
(a) Identify and describe the weaknesses in the internal control system which led to this situation. (10 marks)
Answer
(a) Weaknesses in the internal control system include the following:
i. Lack of segregation of duties that made the accountant to be the only one recovering money from the debtors and handling cash with other functions.
ii. Weakness of reconciliation, absence of reconciliation made it possible for the previous misappropriation to go undiscovered.
iii. Cash collection instead of payment by cheques and bank transfers made it possible for the accountant to misappropriate the cash collected.
iv. Weak organisational structure, adding more responsibility without assessing the impact.
v. Inadequate or lack of credit control policy and processes.
vi. Lack of segregation of duties of collecting, receipting, and posting of insurance claims which aided diversion.
vii. Lack of control of authorisation of transactions. The transactions should be authorised by a superior official.
- Tags: Bank Lodgements, Cash Sales, Control Activities, Control Objectives, Internal Control, Weaknesses
- Level: Level 2
- Topic: Internal Control Systems
- Series: MAR/JULY 2020
- Uploader: Cheoli