INTERNAL CONTROL WEAKNESS AND RELATED RECOMMENDATIONS

#1 Improper segregation of duties

Observation
-The sales and marketing manager evaluates the circumstances of the return and makes a judgement to
grant (or disapprove) credit.

Implication
-Improper segregation of the sales and credit function

Recommendation
-this may lead to the abuse of power by employees in managerial or supervisory positions.

#2 Lack of supporting documents

Observation
-The sales clerk prepares the sales order and copies of the sales order are sent to the warehouse, shipping
and billing department. There is a need to secure a copy of sales order.

Implication
-possibility of audit trail being destroyed

Recommendation
-A copy of sales order should be placed in a customer order file for future reference

#3 Improper segregation of duties

Observation
-The credit memo is then forwarded to the inventory control function for posting. The warehouse clerk
updates the inventory records after comparing the return slip and approved credit memo and send a
journal voucher to the accounting department. The accountant 1 updates the accounts receivable
subsidiary ledger. At the end of the period, total sales returns are summarized in a journal voucher and
sent to the general ledger department. Upon receipt of the journal voucher and account summary
information, the bookkeeper reconcile the figures and posts the adjustments to the appropriate accounts.

Implication
-Inaccurate financial data and overstatement or understatement of sales returns and allowances

Recommendation
-Proper segregation of the warehouse function and inventory control function should be maintained by
the company

#4 Opportunity for fraudulent acts. (misapporpriation of assets)

Observation
-Upon the receipt of customers’ payments, the mail room clerk opens the envelopes which contains the
remittance advices and payments which contains information needed to service individual customer’s
account.

Implication
-Cash receipts may be misappropriated.

Recommendation
-A supervisor must be present during the opening of the envelope process in order to prevent theft and
misappropriation of checks and remittances.
-The company should establish a prenumbered and controlled cash remittance policy.

#1 Improper segregation of duties

Observation
-The sales and marketing manager evaluates the circumstances of the return and makes a judgement to
grant (or disapprove) credit.

Implication
-Improper segregation of the sales and credit function

Recommendation
-this may lead to the abuse of power by employees in managerial or supervisory positions.

#5 outdated/ inaccurate data on accounting records

Observation
-The clerk records the checks in the cash receipts journal. The clerk prepares a deposit slip containing the
day’s receipt and forwards it to the bank including the checks. The clerk also summarizes the journal
entries and sends journal voucher to the general ledger function.

Implication
-Cash and Accounts receivable accounts may not properly reflect correct balances.

Recommendation
-Maintain insurance and fidelity bonds for personnel handling cash. Inform the bank that no checks
payable to the company are to be cashed.