EXERCISE 3 INTERNAL CONTROL QUESTIONNAIRE

Computer 4 Name: Gonzales, Phebelyn A. Guillermo, Ganer Jr. A. Date Submitted: July 9, 2012 M36 2:00-3:00PM

Area of Control: Revenue & Receipts Cycle

Control Objectives: 1. All collections are properly identified, control totals developed, and collections promptly deposited intact. 2. All bank accounts and cash on hand are subject to effective custodial accountability procedures and physical safeguards. 3. All transactions are promptly and accurately recorded in adequate detail and appropriate reports are issued. 4. All transactions are properly accumulated, correctly classified and summarized in the general ledger; balances are properly and timely reconciled with bank statement balances. COMMENTS/ YES NO N/A IC QUESTIONS REMARKS

Initiation & Authorization Procedures

1. 2. 3. 4. 5. Are cashiers' daily cash reports subjected to supervisory review and approval? Are credit and collection policies in writing and properly approved? Does management review and approve bank reconciliations on a monthly basis? Is a restrictive endorsement placed on incoming checks as soon as they are received?

Are instructions given to persons writing checks to make checks payable to the company? Custody & Physical Controls
6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. Are adequate physical facilities provided for safeguarding cash prior to deposit? Is there adequate physical security surrounding cashiering areas? Are employees prohibited from cashing personal checks at cashiering areas? Do written procedures exist regarding the collection of funds, timely deposit, and recording of funds in the accounting records at each cash receipting location? Do deposit slips have an official depository bank number preprinted on the document? If payments are made in person (seminars, workshops, etc.), are manual receipts used and accounted for and balanced to the deposits? Are pre-numbered receipts issued for all cash collections and are numbers of all receipts accounted for? Are funds periodically counted by a person other than the custodian at unannounced times? Is there an adequate audit trail and reconciliation procedure for timely detection of shortages? Are records of revenues such as rents, interest, dividend, etc., adequately controlled so that their non-receipt would be noted and investigated? Are cashiers provided separate cash drawers to establish accountability and are these drawers locked during the cashier's absence?

Recording Procedures
17. Does the company have procedures which accurately record revenue from all sources: cash, check, credit card charge, internal charge, etc.? 18. Are the authorization records of the depository banks up to date? 19. Is the mail receipts log reconciled to: a. The cash receipts journal? b. Validated deposit slips? 20. Are logs of receipt book issuances maintained and reconciled? 21. Is a record of cashiers overages and shortages: a. Maintained? b. Regularly reviewed? 22. Recorded on the books? 23. Are receipts which are given to individuals who deposit cash with the cashier: a. Prepared in multiple copies? b. Identifiable to a specific cashier? c. Dated? d. Numerically controlled?

Segregation of Duties
24. Are the following responsibilities performed by different people: a. Custody of the funds, reconciliation of the funds and access to cash receipts? b. Completing the disbursement receipts, disbursement, and reconciliation? c. Making a deposit, billing, making General Ledger entries and collecting? d. Collecting cash, balancing cash, closing cash registers, making a deposit, maintaining Accounts Receivable records and making General Ledger entries? e. Collecting of licenses, fines, and inspections (etc.) and making General Ledger entries? f. Collecting cash and reconciling the bank account? g. Preparing the deposit and verifying the validated bank deposit slip? h. Is there a formal organizational chart defining responsibilities for processing and recording cash transactions? 25. Are responsibilities for preparing and approving bank account reconciliations and investigation of unusual reconciling items segregated from those for other cash receipts or disbursement functions? 26. Is the responsibility for processing a credit card payment segregated from the processing of a void?

Area of Control: Purchases, Payables & Cash Disbursement Cycle

Control Objectives: 1. All requests for goods and services are initiated and approved by authorized individuals, and are in accordance with budget and appropriation guidelines. 2. All purchase orders are based on valid, approved requests and are properly executed as to price, quantity and vendor. 3. All invoices processed for payment represent goods and services received and are accurate as to terms, quantities, prices and extensions; account distributions are accurate and agree with established account classifications. 4. All checks are prepared on the basis of adequate and approved documentation, compared with supporting data and are properly approved, signed and mailed. 5. All disbursement, accounts payable and encumbrance transactions are promptly and accurately recorded as to payee and amount. 6. All entries to accounts payable, reserve for encumbrances, asset and expense accounts and cash disbursements are properly accumulated, classified and summarized in the accounts. COMMENTS/ YES NO N/A IC QUESTIONS REMARKS

Initiation & Authorization Procedures

1. Are all purchases, other than those from petty cash, made on properly approved orders? a. Does the purchasing agent have sole authority to obligate funds for purchases? b. If not, have delegations of authority been specifically approved by the appropriate governing board? c. Are confirming (after the fact) purchase orders properly used and controlled? 2. Are persons authorized to approve expenditures clearly identified? 3. Do larger checks require a higher level of authority? 4. Are all bank accounts and check signatures properly authorized? 5. Are disbursements approved for payment only by properly designated officials? 6. Are purchases that are not for organization use prohibited? 7. Are all disbursements properly authorized and supported by appropriate documentation?

Custody & Physical Controls

8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. Are only printed pre-numbered checks used and properly controlled? Are voided checks properly mutilated and held for inspection? Are surprise cash counts conducted on a periodic basis? Are there adequate controls for non-check disbursements such as debit memos and wire transfers (e.g., passwords, bank callback verifications, etc.)? Are checks outstanding for over 90 days periodically investigated? Are the purchasing policies in accordance with applicable statutes, contract specifications, and institutional policies? Is the signing of checks in advance prohibited? Is the supply of blank checks adequately controlled? Are all paid invoices or other authorized documents adequately cancelled so as to prevent their reuse? Are all cash disbursements, except those from petty cash, made by check? Are all checks protected against alteration? Are bank statements delivered unopened directly to the reconciler? Has the agency established procedures to ensure that all voided checks are properly accounted for and effectively canceled? Is a written policy established to ensure that the best possible price is obtained for purchases not made from state contract or subject to competitive bidding requirements? Are signed checks delivered directly to the mail room, making them inaccessible to persons who requested, prepared, authorized or recorded them? Are paid checks scrutinized for suspicious and irregular features?

22. 23.

Recording Procedures
24. Is a record of the cash disbursement (e.g., check stub, check copy, cash disbursement record) kept by the person processing the check? 25. Are accounts payable maintained independently of cash receipts and disbursement functions? 26. Are vouchers prepared for all expenditures? 27. Is each bank account under separate ledger control? 28. Do procedures exist that ensure accurate account distribution of all entries resulting from invoice processing? 29. Are the accounting and purchasing departments promptly notified of returned purchases, and are such purchases correlated with vendor credit advices? 30. Are bank accounts reconciled monthly by a person who is independent of the cash function?

Segregation of Duties
31. Is there adequate segregation of duties between the approval and payment functions as to: a. Approval of documents for payment? b. Check preparation? c. Check signing? d. Access to cash? e. Access to accounting records? 32. Is there adequate separation of duties in connection with the following functions? a. Controlling blank purchase orders? b. Placing orders with vendors (including preparation of purchase order)? c. Receiving? d. Processing approved vouchers? e. Disbursing?

Area of Control: Inventory & Production Cycle

Control Objectives: 1. All transactions are approved by authorized individuals. 2. All inventory items are subject to effective custodial accountability procedures and physical safeguards. 3. All receipts and withdrawals of inventory are properly recorded and the records reflect actual quantities on hand. 4. All transactions are properly accumulated, classified and summarized in the accounts.

IC QUESTIONS
Initiation & Authorization Procedures
1. 2. 3. 4. 5. 6. 7. 8. Are work orders or requisitions required to be approved by appropriately designated officials as a basis of issuing inventories? Are purchases made by requisition/purchase order only? Are all shipment of goods required to have an authorized sales order/contract prior to shipment? Are materials released from the storeroom only on receipt of approved requisitions? Are receiving reports signed by an authorized representative, prepared for all material received, and a copy furnished to the accounting department? Is access to storerooms limited to authorized personnel? Are issuing and billing procedures designed and correlated so as to insure the billing of all items? Are adjustments to inventory records approved by a properly designated official?

YES

NO

N/A

COMMENTS/ REMARKS

Custody & Physical Controls

9. Is physical access to inventories restricted to authorized personnel? 10. Are pre-numbered tags used during the physical inventories count? 11. Are there special safeguards for expensive material and material susceptible to personal use or sale? 12. Is a central storeroom and receiving station maintained? 13. Does management assess inventory policies and procedures periodically? 14. Is scrap adequately controlled (e.g., collection, segregation, disposition, and issuance of appropriate credits)? 15. Are transportation bills compared with applicable invoices, purchase orders, and receiving reports? 16. Does the controller or other appropriate person periodically assess whether excess, slow moving, obsolete and defective inventory items are identified and accounted for appropriately? 17. Does the controller or other responsible person periodically review budgeted and actual production costs and investigate significant differences? 18. Are quantities of material received verified by actual count, weight, or measurement by the receiving department? 19. Is quality inspection evidenced by inspection reports, notations, receiving reports, or other acceptable records? 20. Are procedures in effect to control defective and damaged material, over shipments, returned material, material received but not ordered, and claims against carriers and vendors, and to identify related responsibilities for the issuance of debit memorandums? 21. Has adequate protection against spoilage and pilferage been provided for, with special care being given to sensitive items? 22. After the inventory is counted, are the count tags, sheets, etc., properly controlled? 23. Is adequate insurance coverage provided? 24. Are the storerooms or storage areas properly safeguarded or controlled to prevent access to materials by unauthorized persons? 25. Is a record kept on keys to storerooms, storage areas, etc.? a. Is this record checked periodically?

Recording Procedures
26. Are physical Inventories: a. Supervised by someone independent of the custodial or record keeping functions? b. Recorded on permanent inventory count sheets? c. Re-recorded on count sheets signed and dated by the person supervising the count? d. Reflected in the perpetual records based on the actual inventory quantities? 27. When issuing inventory, is the proper fund, purpose, and object charged in the general ledger? 28. Are entries to perpetual inventory records made timely upon the receipt of goods? 29. Is a permanent record of material received by the receiving department maintained? 30. Are copies of receiving reports sent directly to purchasing, accounting, and, if appropriate, inventory record keeping? 31. Are receiving reports prepared for all purchased goods? 32. Are the labor costs and overhead costs charged to inventory reconciled to payroll records and overhead costs incurred? 33. Are goods that are consigned in and out accounted for properly? 34. Are shipping documents forwarded to the accounting department for proper reduction of inventory and recording of cost of sales?

Segregation of Duties
35. Is there separation of duties between persons who handle the inventories a. Inventory records? b. Sales billings? c. Recording of purchases? 36. Is a definite responsibility designated for each inventory type? 37. Are inventories under the physical control of designated individuals who are held responsible for quantities on hand? 38. Are receiving, issuing, accounting, and storing responsibilities properly separated?

Area of Control: Payroll Cycle

Control Objectives:
Additions, separations, wage rates, salaries and deductions are authorized and documented. Payroll and personnel policies are in compliance with grant agreements and federal and state laws. 2. Employees' time and attendance data are properly reviewed and approved. 3. Employees' time and attendance data are properly processed and documented and accurately coded for account distribution. 4. Computations for gross pay, deductions and net pay are accurate and based on authorized time and rates; the recording and summarization of payments to be made and cost to be distributed are accurate and agree with established account classifications. 5. Payments for employee compensation and benefits are made to or on behalf of only bona fide employees for services performed as authorized. 6. Employee compensation and benefit costs are properly accumulated, classified and summarized in the accounts. COMMENTS/ YES NO N/A IC QUESTIONS REMARKS Initiation & Authorization Procedures 1. Are payrolls approved by someone in authority? 2. Are all changes to employee status or pay rate authorized and approved by an appropriate official? 3. Are time and labor entries approved by the dean, director, unit head, or other supervisor who has supervisory responsibilities over the persons whose time and/or payment is being approved? 4. Are payroll distributions properly approved and made timely and accurately? 5. Is appropriate identification and authorization required if paychecks or earning statements are to be provided to individuals other than the employee? Additionally, if the employee is unknown to the paycheck distributor, is appropriate identification required before the pay check is released? 6. Are labor distributions and vacation/sick accrual reports reviewed for reasonableness each pay period by a senior official? 7. Is approval of employee payroll documents always at a higher administrative level? 1.

Custody & Physical Controls

8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. Does the payroll processor review the preliminary pay lists to ensure that employees will be paid correctly? Have employees charged with payroll and distribution responsibilities been appropriately trained? Does management review, sign, and date the Final Pay Lists to document that faculty and staff are paid according to wage contracts and terminated employees are not paid? For employees required maintaining time cards for time worked, do the time records reflect the actual hours/minutes worked rather than the hours scheduled to work? Are payroll checks and earning statements properly secured prior to delivery? Are reported overtime hours verified for reasonableness and proper pre-approval? Are undistributed pay checks returned to the finance office after three working days? Is the performance of all employees formally evaluated on at least an annual basis? Do any employees have custody of their own time-sheets after supervisory approval has been obtained? Are blank payroll checks adequately controlled? Do procedures exist to insure that all employees are bona fide? Do procedures exist to prevent employees from receiving pay other than through properly approved and processed payroll procedures for services performed (for example, consulting services)? Are copies of timekeeping records retained on file? Are payroll subsidiary accounts reconciled with control accounts? Is documentation of this approval maintained in each employee's personnel file? Are appropriate time records for leave maintained and are they reconciled at least annually? Are complete personnel records maintained outside the payroll section? Are payroll bank accounts maintained on an impress basis and reconciled by someone having no payroll duties? Are employees required to be identified or to produce some identification before receiving their paychecks? Is there uniform application of payroll policies regarding the following items? a. Time worked? b. Time not worked (such as vacations, sick leave, and holidays)? c. Job classifications and salary ranges? d. Changes in rates of pay? e. Application of employee benefits?

Recording Procedures
20. 21. 22. 23. 24. 25. 26. 27.

Segregation of Duties
28. Is there adequate separation of duties in the preparation of payrolls? 29. Is there adequate segregation of duties to ensure that different individuals process personnel action forms, process and distribute the payroll, and record the payroll in the general ledger? 30. Are the duties of approving job actions and approval of time segregated from the duties of distribution of the paychecks? 31. Are pay checks distributed by someone other than the timekeeper? 32. Are the payroll checks distributed by someone other than the payroll department? 33. Are the duties of payroll office employees rotated, and are they required to take annual vacations? 34. Is there segregation of personnel and payroll functions?