The board of trustees of a local church has asked for your help with the controls activities for the offering collections made at weekly services. At a board meeting, you learn the following:
1. The board has made the finance committee responsible for the financial management and audit of the financial records. This group prepares the annual budget and approves major payments but is not involved in collections or record keeping. No audit has been done in recent years, because the same trusted employee has kept church records and served as financial secretary for 15 years. None of the church employees, or board of trustees, are bonded.
2. The collection at the weekly service is taken by a team of ushers who volunteer to serve for one month. The ushers take the collection plates to a basement office at the rear of the church. They hand their plates to the head usher and return to the church service. After all plates have been turned in, the head usher counts the cash collected. The head usher then places the cash in the unlocked church safe and includes a note that states the amount counted. The head usher volunteers to serve for three months.
3. The next morning, the financial secretary opens the safe and recounts the collection. The secretary withholds from $150 to $200 in cash, depending on the cash expenditures expected for the week, and deposits the remainder of the collections in the bank. To make the deposit easier, church members who contribute by cheque are asked to make their cheques payable to Cash.
4. Each month, the financial secretary reconciles the bank statement and submits a copy of the reconciliation to the board of trustees. The reconciliations have rarely contained any bank errors and have never shown any errors per books.
Instructions
(a) Indicate the weaknesses in internal control in the handling of collections.
(b) List the improvements in internal control that should be recommended with regard to (1) The ushers,
(2) The head usher, and
(3) The financial secretary.
Taking It Further
Under what circumstances might these internal control weaknesses lead to fraud?