Name: Honey Grace T.

Panes Date: March 29, 2024

Course: BSA 3 Instructor: Anne Angelie Sebial

Activity 2: INTERNAL CONTROL STRENGTHS

Requirement 1: Identify six (6) strengths in the Jem Clothes system for controlling sales transactions.

1 The 25 stores use the same system for controlling sales transactions.
2 Manager and assistant manager are paid in salary basis.
3 Separation of cashier and salespeople for completing sales invoices and returns.
4 Automatic sequential numbering is done by the cash register.
5 The multi-part invoices are sequentially ordered.
6 The reconciliation of cash receipts, checks, bank cards, returns, and cash register tapes is
performed.

Requirement 2: For each strength identified, explain the problem(s) Jem Clothes has avoided by
incorporating the strength in the system for controlling sales transactions.

Use the following format in preparing your answer.

1. Strength
2. Problem(s) Avoided

1. Strength: The 25 stores use the same system for controlling sales transactions.
2. Problem(s) Avoided: The difficulty in auditing the stores and incorporating chainwide
improvements.

1. Strength: Manager and assistant manager are paid in salary basis.

2. Problem(s) Avoided: Avoids subjectivity in sales and commission allocations. It also prevents
subjectivity for credit and check approvals.

1. Strength: Separation of cashier and salespeople for completing sales invoices and
returns.
2. Problem(s) Avoided: Minimize the possibility of fraud.
Help mitigate sales invoice errors.
Prevents the salespeople from taking the returns for their own personal
use.

1. Strength: Automatic sequential numbering is done by the cash register.

2. Problem(s) Avoided: Eliminates subjective consecutive numbering minimizing employee theft.
Avoids the undetected loss of an invoice. Provides an audit trail for
invoices.

1. Strength: The multi-part invoices are sequentially ordered.

2. Problem(s) Avoided: Prevents the omission of an invoice.
Avoids possible fraudulent payment shortage. Provides a distribution of
copies of the invoice throughout the system.
 1. Strength: The reconciliation of cash receipts, checks, bank cards, returns, and cash
register tapes is performed.
2. Problem(s) Avoided: Reduces the possibility of theft or fraud.
Provides another opportunity to catch errors.

Activity 3: INTERNAL CONTROL WEAKNESSES

Internal Control Weaknesses Discussion

Transaction Authorization “Inventory Control” is not issuing purchase
requisition indicating which item’s inventory
levels needed to re-order. The missing purchase
requisition is important when inventory drops to
or below a certain pre-determined level and acts
as an authorization check. The transaction is
lacking, which is extremely important. Without a
purchase requisition, managers may purchase
inventory at their own discretion, which can be
incorrect.
Segregation of Duties The inventory should also be separated from
warehouse stores. Fraudulent behavior can
occur if the functions are the same; this is
because the auditor will be able to reconcile the
figures and this will lead to discrepancies
between the actual and the made-up
reconciliation.
Supervision The receiving report will be completed from the
“packing slip” once the goods arrived from the
vendor, it will not be done by actually verifying all
goods have been received. This receiving
department should always be supervised, and in
this situation, it is not supervised. Without
supervision, goods that are carried throughout
the system may pass without question even if
they are defects.
Accounting Records There is no such record of the disbursement of
payment to the vendor in a separate ledger other
than the “general ledger”. “Inventory records”
that are being updated are based on what was on
the “purchase order”. There seems to be no
three-way check which is important because a
three-way check ensures that the system is
efficient.
Access Control Segregation of duties has to be brought up again
because there are many factors in the Cash
Disbursement section. Someone with the wrong
intentions can adjust the cash and hide the
transaction so that they benefit from the
fraudulent behavior.
Independent Verification The General Ledger Department should receive
different files from other departments to make
sure the accounting process is precise. One
person should verify all the summary reports and
reconciliation.