As the Chief Finance Manager of a company, design an internal control for the company with respect to;
i) Cheque payments (10 marks)
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Controls Over Cheque Payment
a. Unused cheques should be held in a secure place.
b. The person who prepares cheques should have no responsibility over purchase ledger or sale ledger.
c. Cheque should be signed only when evidence of a properly approved transaction is available. Such evidence may take the form of invoices, pay roll, petty cash book etc.
d. This check should be evidenced by signing of the supporting documentation.
e. In a large concern, those approving the original document should be independent of those signing cheques.
f. Cheque signatories should be restricted to the minimum practical number.
g. Two signatories at least should be required except perhaps for cheque of small amount.
h. The signing of “Blank” cheques and cheques in favour of the signatories should be prohibited.
i. Cheques should be crossed before being signed.
j. Supporting documents should be cancelled as paid to prevent their use to support further cheque payment.
k. Cheques should preferably be dispatched immediately if not, they should be held in a safe place.
l. Return cheques should be obtained from the bank and the sample checked against cashbook entries and supporting documentation.
ii) Bank reconciliation (5 marks)
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Controls over bank reconciliation
a. Bank reconciliation should be prepared at least monthly.
b. The person responsible for preparation should be independent of the receipts and payment function or alternatively an independent person should check the reconciliation.
c. If the reconciliation is prepared by an independent person, he should obtain bank statement directly from the bank and hold them until the reconciliation is completed.
d. The preparation should preferably include checking receipts and payment against items on the bank statement.