The following control procedures are used in Centennial Bay General Merchandise for cash payments:
1. Company cheques are not pre-numbered and are kept in an unlocked file cabinet in the controller's office.
2. Cheques must be signed by the controller.
3. The purchasing agent verifies that the goods have been received, verifies the accuracy of the invoice, and authorizes the controller to issue a cheque for the purchase.
4. After the controller prepares and signs the cheque, she stamps the invoice paid and fi les it. She then records the cheque in the journal.
5. The controller prepares the bank reconciliation on a monthly basis and gives it to the company owner. As the company owner trusts the controller, he doesn't bother checking the bank reconciliations.
6. Background checks are not conducted on personnel hired for senior positions such as the purchasing agent or controller.
7. The company owner is impressed with how hard the purchasing agent works. He hasn't taken a vacation in two years.
Instructions
(a) For each procedure, explain the weaknesses in internal control, and identify the control activity that is violated.
(b) For each weakness, suggest a change in procedure that will result in good internal control?