Richards Furniture Company
The salesperson prepares four copies of a sales invoice, retaining one and sending three to the cashier. The cashier approves and processes the sale by assigning it a consecutive number and recording it in the cash register. The cashier sends the cash register tape to the assistant manager, who also has a copy of the validated invoice. The assistant manager uses the validated invoices, cash receipts and slips for return merchandise to prepare the bank deposit. The manager reviews the bank deposit and takes it to the bank. The manager also files the bank deposit documents by date. The assistant manager uses the cash register tape to prepare a report, which he reconciles with the other documents in his possession.
Internal control strengths in this system include: the use of serially-numbered documents, filing the bank deposit items by date and depositing cash in the bank. However, those strengths are minimal compared to the many weaknesses in the system. First, the cashier should not be approving the sale; approval should be delegated to a separate credit-granting department since the cashier is also handling the receipts. Second, the transaction number is assigned too late in the system. Under the current system, the salesperson and cashier could collude simply to remove invoices and receipts from the system; without consecutive numbering, there’d be virtually no way to detect that fraud. That problem would be easily corrected by assigning the transaction number automatically when invoices are created, or simply by using pre-numbered sales invoices from the start. In addition, the assistant manager has too much responsibility; handling the cash, invoices and return slips would facilitate theft, particularly since the assistant manager also prepares and reconciles the report regarding bank deposits. Correcting that issue would involve unbundling some of the assistant manager’s responsibilities, which would probably entail adding another person to the system.