Natalie is struggling to keep up with the recording of her a

Natalie is struggling to keep up with the recording of her accounting transactions. She is spending a lot of time marketing and selling mixers and giving her cookie classes. Her friend John is an accounting student who runs his own accounting service. He has asked Natalie if she would like to have him do her accounting.

John and Natalie meet and discuss her business. John suggests that he do the following for Natalie.

1.		Hold onto cash until there is enough to be deposited. (He would keep the cash locked up in his vehicle). He would also take all of the deposits to the bank at least twice a month.
2.		Write and sign all of the checks.
3.		Record all of the deposits in the accounting records.
4.		Record all of the checks in the accounting records.
5.		Prepare the monthly bank reconciliation.
6.		Transfer all of Natalie’s manual accounting records to his computer accounting program. John maintains all of the accounting information that he keeps for his clients on his laptop computer.
7.		Prepare monthly financial statements for Natalie to review.
8.		Write himself a check every month for the work he has done for Natalie.

Identify the weaknesses in internal control that you see in the system that John is recommending. (Consider the principles of internal control identified in the chapter.) Can you suggest any improvements if John is hired to do Natalie’s accounting?

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Weakness in Internal Control:

Internal control should have controls to mitigate risks

.1 Holding on to cash for 15 days has risk of theft. Keeping cash in vehicle (though locked) carries risk

.2Writing and signing of check by the same person carries weakness of internal control since it is against the principle of segregation of duties

.3 Preparation of bank reconciliation by the same person who keeps accounts has control weakness .

4.Writing check for himself has control weakness

Improvements suggested:

1.Cash should be deposited everyday in the bank

2.Checks should signed by Natalie.Checks can be prepared by John , but signing authority should be with Natalie

3.Bank reconciliation may be prepared by John every month, bt this must be reviewed by Natalie

4.Check for John for his services should be prepared and signed by Natalie

5. Natalie should perform regular independent review of accounts maintained by John

Natalie is struggling to keep up with the recording of her accounting transactions. She is spending a lot of time marketing and selling mixers and giving her co

Natalie is struggling to keep up with the recording of her a

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