At Torres Company, various control procedures are implemented for handling over-the-counter cash receipts. Let’s explore each of these procedures, identify their weaknesses in internal control, and discuss the potential control principles that could be applied to mitigate these weaknesses.
- Procedure 1: Cash Receipts Logged in a Receipt Book
Weakness: If a single employee handles the logging of cash receipts and the physical cash, it can lead to opportunities for theft or manipulation of records, as there may be no verification or checks in place to ensure accuracy.
Control Principle: Segregation of duties should be implemented. One person should handle cash, while another maintains the receipt log to ensure an independent check on cash transactions. - Procedure 2: Daily Cash Deposits
Weakness: If cash is not deposited daily, it increases the risk of loss or theft, as cash may accumulate and become harder to track.
Control Principle: Daily cash deposits should be mandatory to reduce the risk of accumulation and ensure timely safeguarding of funds. - Procedure 3: Staff Training on Cash Handling
Weakness: Inadequate training might lead to errors in cash handling, calculations, or reporting, leading to potential discrepancies.
Control Principle: Regular and comprehensive training programs should be conducted for all staff involved in cash handling to ensure understanding and compliance with procedures.
By addressing these weaknesses through effective control principles, Torres Company can enhance its internal control over cash receipts and minimize the risks associated with cash handling.