Identifying and correcting internal control :
Suppose a car dealership is opening a Regional office in Texas. Linda barnes the office manager, is designing the internal control system. The manager purposes the following procedures for credit checks on new customers, sales on account, cash collections, and write offs of uncollectible receivables.
*the credit department runs a credit check on all customers who apply for credit. When an account proves uncollectible, the credit dept. authorizes the write-off of the account receivable.
* Cash receipts comes in to credit dept., which separates the cash received from the customer remittance slips. The credit dept. list all cash receipts by customer's name and amount of cash received.
* The cash goes to the treasurer for deposit to the bank. The remittance slip go to the accounting dept. for posting to the customer's accounts.
* The controller compares the daily deposit slip to the total amount posted to the customer accounts. Both amounts must agree.
Requirement: Recall the components of internal control. Identify the internal control weakness in the above situation. Propose a way to correct it.
Info: The components of internal control are:
- Monitoring of Control
- Information system,
- Control procedures
- Control Environment
- Risk Assessment