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Caterpillar Co.: Key Control Test of Control

Caterpillar Co. has internal controls over cash receipts including ensuring cash is recorded correctly, safeguarded from theft, and recorded in the proper accounting period. The internal audit department reviews cash controls at stores and found no exceptions after visiting the largest 20 stores. Daily cash is reconciled and discrepancies are noted. Cash is transferred daily to the bank by a security company. However, there are some control deficiencies including only auditing the largest stores, all employees using the same tills, employees serving friends/family, aggregate reconciliation of tills, cash being stored overnight in shops, and lack of segregation of cash duties. Recommendations are provided to address these deficiencies.

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944 views2 pages

Caterpillar Co.: Key Control Test of Control

Caterpillar Co. has internal controls over cash receipts including ensuring cash is recorded correctly, safeguarded from theft, and recorded in the proper accounting period. The internal audit department reviews cash controls at stores and found no exceptions after visiting the largest 20 stores. Daily cash is reconciled and discrepancies are noted. Cash is transferred daily to the bank by a security company. However, there are some control deficiencies including only auditing the largest stores, all employees using the same tills, employees serving friends/family, aggregate reconciliation of tills, cash being stored overnight in shops, and lack of segregation of cash duties. Recommendations are provided to address these deficiencies.

Uploaded by

Pink Girl
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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Caterpillar Co.

a)
 To ensure all cash receipts are recorded in the cash book.
 To ensure cash is safeguarded to prevent theft.
 To ensure cash receipts are recorded in the correct accounting period.
b)

Key Control Test of Control


Caterpillar Co has an internal audit Review the Internal audit file to confirm
department which that the 20 stores were visited and for
has undertaken a number of internal exceptions noted and actions taken.
control
reviews specifically focusing on cash
controls at
stores during the year.
The existence of an internal audit
department reduces the risk of fraud
and will ensure the stores adhere to the
policies and procedures.
At the end of each day, the tills are Discuss with the store manager about
closed down with daily readings of sales the discrepancies identified and the
taken from each relevant follow up action taken to
till. These are reconciled to the total of resolve.
the cash in the tills and the credit card
payment slips
and any discrepancies are noted.
If there is any discrepancy that can be
identified on a timely basis and reduce
the risk of fraud as employees are
aware that the assistant manager will
perform reconciliations.
The cash is received by sales is Observe the process being carried out
transferred to the bank via collection by by the security company.
a security company.
This ensures cash is safeguarded and
the risk of theft during transfer is
minimised.

c)

Control deficiency Recommendation


Caterpillar Co has 45 stores out of
which only the largest 20 stores are The IA should visit every store on at
visited by the IA dept. least once annually.
There is a risk that the other 25 stores
might not operate effectively and errors
may go undetected since they know
that they will not be visited by the IA
dept.
All employees based at the store are Only employees with log on codes
able to use each till and individuals do should be able to use, and each
not employee should have a designated till
have their own log on codes, although
employees tend to use the same till
each day. Allowing all employees to use
all the tills will make locating error
difficult.
Where employees’ friends or When a friend/family of an employee
family members purchase clothes in comes to the store an unrelated
store, the employee is able to serve employee should serve and a supervisor
them at the till point. should ensure appropriate amount is
There is a risk that the employees might charged.
give their friends/family undue
discounts which will have a negative
effect on the company
To save time, this reconciliation is done For better control purpose, the assistant
by the store’s manager should reconcile the sales day
assistant manager in aggregate for all of book with the total cash separately for
the store tills together. each till.
Reconciliation of all the tills together
will make identifying errors and
discrepancies difficult.
, the cash is stored in the shop’s small The cash should be banked on a daily
safe overnight . basis but should be at the time the store
The cash is at risk of theft. closes.
The clerk is responsible for a numerous The responsibilities should be split
elements o the cash system. between different individuals.
There is lack of segregation of duties,
which increases the risk of fraud and
timely identification of errors

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