The question is incomplete! Complete question along with answer and explanation is provided below.
Question:
For each procedure, explain the weakness in internal control and identify the internal control principle that is violated
1. Each week, 100 company checks are left in an unmarked envelope on a shelf behind the cash register.
2. the store manager personally approves all payments before she signs and issues checks.
3(i). the store purchases used goods for resale from people that bring items to the store. since that can occur anytime that the store is open, all employees are authorized to purchase goods for resale by disbursing cash from the register.
3(ii). the purchase is documented by having the store employee write on a piece of paper a description of the item that was purchased and the amount that was paid. the employee then signs the paper and puts it in the register.
4. after payment, bills are "filed" in a paid invoice folder.
5. the company accountant prepares the bank reconciliation and reports any discrepancies to the owner.
Answer:
1. Physical controls
2. Segregation of duties
3(i). Establishment of responsibility
3(ii). Segregation of duties
4. Documentation procedures
5. Independent internal verification
Explanation:
1. Each week, 100 company checks are left in an unmarked envelope on a shelf behind the cash register.
Weakness:
Leaving checks on a shelf behind the cash register is not a secure place, therefore, there is a risk of checks being stolen by the employees.
Principle violated:
The principle of physical Controls has been violated.
2. the store manager personally approves all payments before she signs and issues checks.
Weakness:
The approval and payment of checks should not be done by the same employee.
Principle violated:
The principle of segregation of duties has been violated.
3(i). the store purchases used goods for resale from people that bring items to the store. since that can occur anytime that the store is open, all employees are authorized to purchase goods for resale by disbursing cash from the register.
Weakness:
All employees should not be unauthorized to make purchases, rather a few employees should be selected for such duty.
Principle violated:
The principle of establishment of responsibility has been violated.
3(ii). the purchase is documented by having the store employee write on a piece of paper a description of the item that was purchased and the amount that was paid. the employee then signs the paper and puts it in the register.
Weakness:
The approval and payment of checks should not be done by the same employee.
Principle violated:
The principle of segregation of duties has been violated.
4. after payment, bills are "filed" in a paid invoice folder.
Weakness:
Just because a bill is filed doesn’t mean that it cannot be paid more than once therefore, the possibility of paying the bill more than once exists.
Principle violated:
The principle of documentation procedures has been violated.
5. the company accountant prepares the bank reconciliation and reports any discrepancies to the owner.
Weakness:
An internal employee may prepare the bank reconciliation but it should also be reviewed independently just to make sure that there are no discrepancies
.
Principle violated:
The principle of independent internal verification has been violated.
