Internal audit control in a moderate sized business;

              42 HASKINS & SELLS May
Internal Audit Control in a Moderate Sized Business*
BY A. F. WAGNER, Manager, Minneapolis Office
(Presented before the Twin Cities Chapter of the
National Association of Cost Accountants)
IT is impossible to achieve the ideal of
internal audit control in the office of a
moderate sized business. The principles
which should be followed in order to im­prove
internal control in the small office
are, in general, as follows:
1. No one person should have all finan­cial
matters within his grasp, much less
within his control.
2. The controlling records should be di­vorced
from the person who handles funds.
In the small office which has one em­ployee
who combines the function of
cashier and bookkeeper, all kinds of
shortages are possible. These include the
abstraction of cash on hand without entry
in the records; interception of incoming
funds; lapping; that is, applying the col­lection
from one customer to the credit
of another customer whose remittance was
intercepted; and improper withdrawal of
funds, which withdrawals are erroneously
entered in the records. The remedies
which may be applied in a moderate sized
office are as follows:
1. Divorce the functions of cashier and
bookkeeper so that it will be difficult for
the cashier to manipulate the control
records.
2. Use an imprest fund for currency dis­bursements
and have this fund reimbursed
periodically for the exact amount of the
currency disbursements.
3. Have someone in the office, such as a
mail-opening clerk, list the incoming re­ceipts
and turn the list over to the book­keeper
as a control on the cashier.
4. Arrange for regular intermittent
reconcilements of the bank account by
someone other than the cashier.
5. Do not let the cashier make any
postings from the cash book.
6. Do not operate the cash account as
a mixed cash account; that is, do not have
one account which includes both the cash
on hand and cash in bank.
7. Insist that each day's cash receipts
be deposited in the bank in total in exactly
the same form in which they are received.
This means that the cashier should not be
permitted to cash checks from incoming
currency or make disbursements from cur­rency
received.
8. Arrange the office routine so that the
cashier will not pass on the question of
cash discounts or allowances.
9. Do not permit the cashier to draw
checks payable to cash, or to sign checks
without a counter signature.
10. If checks are spoiled or cancelled,
tear off the signature, or space for signa­ture,
but do not destroy such spoiled or
cancelled checks.
11. If the company has two or more
bank accounts, do not permit a choice of
two persons to sign checks if both are
available. One purpose of this is to pre­vent
a dishonest cashier from obtaining
the signature of one official, apparently for
the purpose of transferring fund's, and then
obtain the signature of another person on
another check for the purpose of trans­ferring
funds, which second check might
be used to conceal the improper use of the
first check.
It is probably impossible to make use of
all of the foregoing in a small office, but the
accounting system and delegation of duties
should comprehend as many of the fore­going
as possible. After a system of in-
* Reprint from the March 15, 1929, issue of the National Associa­tion
of Cost Accountants Bulletin.