Reference no: EM132619164

Erin Company recently changed its system of internal controls over cash disbursements. The system includes the following features:

1. Instead of being unnumbered and manually preprered, all checks must not be prenumered and written by using the new checkwriter purchased by the company.

2. Before a check can be issued, each invoice must have the approval of Karen Noonan, the purchasing agent, and Tom Fah, the receiving department supervisor.

3. Checks must be signed by either Carl Merfeld, the treasurer, or Bonnie Kurt, the assistant treasurer. Before signing a check, the signer is expected to compare the amounts of the check with the amounts on the invoice.

4. After signing a check, the signer stamps the invoce "Paid" and inserts within the stamp, the date, check number, and amount of the check. The "Paid" invoice is then sent t the accounting department for recording.

5. Blank checks are stored in a safe in the Treasurer's office. The combination to the safe is known by only the treasurer and assistant treasurer.

6. Each month the bank statement is reconciled with the bank balance per books by the the assistant chief accountant.

7. All employees who handle or account for cash are bonded.

8. Surprise cash count on all disbursing officers.

9. Property custodians and other accountable officers are instructed to avail of the forced leave.

10. Accounting for the completeness of accountable forms (e.g. checks, official receipts, etc.)

Instruction

Problem 1: Identify the internal control principles and thier application to cash disbursements of Erin Company.