Question

Tott Company has the following internal control procedures over cash disbursements. Identify the internal control principle that is applicable to each procedure.

(a) Company checks are prenumbered.
(b) The bank statement is reconciled monthly by an internal auditor.
(c) Blank checks are stored in a safe in the treasurer’s office.

Answer 1

Answer: a) Documentation Procedures

b) Independent Internal Verification

c) Physical Control

Explanation:

I'll list the internal control principle in bold letters and then explain them a little.

(a) Company checks are prenumbered. DOCUMENTATION PROCEDURES.

These are meant to provide a paper trail to identify the events that occur in a company and pre numbering check ensures that the number is always known.

(b) The bank statement is reconciled monthly by an internal auditor. INDEPENDENT INTERNAL VERIFICATION.

Here the company runs its own checks and balances to ensure that they are in good shape.

(c) Blank checks are stored in a safe in the treasurer’s office. PHYSICAL CONTROL.

This refers to the use of physical devices to keep documents and assets safe and can include safes, vaults and safety deposit boxes.