Internal control principles

Mexican Fare, a 50-year-old Mexican restaurant, recently changed its system of internal control over cash disbursements. The system includes the following features. Instead of being unnumbered and manually prepared, all checks must now be prenumbered and written by using the new checkwriter purchased by the company. Before a check can be issued, each invoice must have the approval of Norma Hanson, the purchasing agent, and John Countryman, the controller department supervisor. Checks must be signed by either Linda Anderson, the treasurer, or Bob Skabo, the assistant controller. Before signing a check, the signer is expected to compare the amount of the check with the amount on the invoice. After signing a check, the signer stamps the invoice PAID and inserts within the stamp, the date, check number, and amount of the check. The “paid” invoice is then sent to the accounting department for recording. Blank checks are stored in a safe in the treasurer’s office. The combination to the safe is known only by the treasurer and assistant treasurer. Each month, the bank statement is reconciled with the cash balance per books by the assistant chief accountant.

Identify the internal control principles and their application to cash disbursements of Mexican Fare.


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