The board of trustees of a local church is concerned about the internal
accounting controls pertaining to the offering collections made at
weekly services. They ask you to serve on a three-person audit team with
the internal auditor of the university and a CPA who has just joined
the church. At a meeting of the audit team and the board of trustees you
learn the following.
1. The church’s board of trustees has delegated responsibility for the
financial management and audit of the financial records to the finance
committee. This group prepares the annual budget and approves major
disbursements but is not involved in collections or recordkeeping. No
audit has been made in recent years because the same trusted employee
has kept church records and served as financial secretary for 15 years.
The church does not carry any fidelity insurance.
2. The collection at the weekly service is taken by a team of ushers
who volunteer to serve for 1 month. The ushers take the collection
plates to a basement office at the rear of the church. They hand their
plates to the head usher and return to the church service. After all
plates have been turned in, the head usher counts the cash received. The
head usher then places the cash in the church safe along with a
notation of the amount counted. The head usher volunteers to serve for 3
months.
3. The next morning the financial secretary opens the safe and recounts
the collection. The secretary withholds $150 – $200 in cash, depending
on the cash expenditures expected for the week, and deposits the
remainder of the collections in the bank. To facilitate the deposit,
church members who contribute by check are asked to make their checks
payable to “Cash.”
4. Each month the financial secretary reconciles the bank statement and
submits a copy of the reconciliation to the board of trustees. The
reconciliations have rarely contained any bank errors and have never
shown any errors per books.
Instructions
(a) Indicate the weaknesses in internal accounting control in the handling of collections.
(b) List the improvements in internal control procedures that you plan
to make at the next meeting of the audit team for (1) the ushers, (2)
the head usher, (3) the financial secretary, and (4) the finance
committee.
(c) What church policies should be changed to improve internal control?
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