Audit unit 5 assigment.docx - 10-27 Henry Mills is responsible for preparing checks recording cash disbursements and preparing bank reconciliations for

Audit unit 5 assigment.docx - 10-27 Henry Mills is...

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10-27 Henry Mills is responsible for preparing checks, recording cash disbursements, and preparing bank reconciliations for Signet Corporation. While reconciling the October bank statement, Mills noticed that several checks totaling $937 had been outstanding for more than one year. Concluding that these checks would never be presented for payments, Mills prepared a check for $937 payable to himself, forged the treasurer's signature, and cashed the check. Mills made no entry in the accounts for this disbursement and attempted to conceal the theft by destroying the forged check and omitting the long-outstanding checks from subsequent bank reconciliations. Required: a. Identify the weaknesses in Signet Corporation's internal control. The principal weakness in the internal control is that bank reconciliations are prepared by the same employee who records cash disbursements and prepares checks for signature. If another employee had reconciled bank statements, Mills would not have been able to conceal the existence of the forged check. Bank reconciliations should be prepared by an employee with no other responsibilities for cash transactions. Another weakness in internal control is that checks are allowed to remain outstanding indefinitely. The outstanding check list should be reviewed periodically and payment should be stopped on checks outstanding for more than a reasonable period of time (90 days is often used for this purpose).
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