Answer Caterpillar Co.

Part – B

Direct controls Test of controls

Daily tills reconciliations Visit the sample of stores and review the
At the end of each day, tills are closed down daily cash file and also the reconciliations
with daily readings of sales taken and these prepared; agree the signature of the
are also reconciled to the total of cash in the responsible official.
tills and the credit card payment slips and Also discuss with the management their
discrepancies are noted. process to identify and resolve the
This would assure the monitoring over the discrepancies.
cash and it is controlled, reducing the
chances of theft of cash and also reducing
the chances of misstatements in the cash
balance.
Cash collected by the security company Visit the stores and observe the cash
Cash received from the customers is collection process to confirm it is transferred
transferred to the bank via security company. via security company.
This would assure the safeguard of cash and Also review the documentation/agreement
undermining the chances of theft of cash and with the security company including
also reducing the chances of overstated cash individual cash transfer document to confirm
balance. the balance to be transferred.
Data are transferred to head office Obtain the daily sales readings and compare
The daily sales readings from the tills along with the head office records to confirm they
with the cash data and credit card payments are updated. Also review the date of data
data are transferred to head office through transfer to confirm that data is transferred
an interface with sales and cash receipts on daily basis.
records. Also discuss with the clerk about any
This would ensure that sales and cash discrepancy and their process to resolve it as
records are updated on timely and thus clerk is responsible for overseeing the
maintaining the accurate and complete process.
records of sales and cash.
Check on amounts being banked Obtain the sample of deposit slips and agree
On a daily basis, the clerk agrees that the those amounts in the bank statement. Also
cash transferred by the security company has discuss their process to identify any
been banked in full by agreeing cash deposit discrepancy. Review the daily reconciliation
slip to the bank statements, and the credit and agree the signature of responsible
card receipts have been from the credit card official as review conducted.
company. Also re-perform the reconciliations to further
By having check and balance on two different test the accuracy.
sources would assure the completeness of
cash receipts/records
Part – C

Control deficiencies Recommendations

IA not checking all the stores IA department should revisit their review
The IA department only undertakes the programs and all the stores should be visited
internal control reviews and visited 20 largest to evaluate the controls.
stores out of 45, even half of the stores are Visiting the stores may also be done on
not visited. rotational basis.
Due to this, there are chances of errors or IA department should also provide the
any control mechanism may not be recommendations to improvise the controls
functioning well and thus increasing the where necessary.
chances of theft of cash.
No individual’s log on codes Each employee should have own log on
All the employees are able to use each till coded for each payment transactions and not
and individuals do not have their own log on all the employees should have access
codes when using these tills. towards the cash till, only designated trust
Allowing the access to all employees towards worthy employees should be able to us the
till would increase the chances of till for customers payments.
errors/frauds and also in the event of any
discrepancy, it would be difficult to make
employees accountable as it would be
difficult to trace the employee.
Employees can serve friends/family The company should make the policy not to
Where employees’ friends or family entertain the family members, friends at the
members purchase clothes in the store, the till point, another employee should do deal.
employee is able to serve them at the till There should be CCTV facility at the till point
point. to monitor the dealing with the customers
Employee may give unauthorized discounts and so that employees would not deal by
to them or may even give any product free of themselves.
charge/give away and thus loss to the
company.
Junior clerk sent to the bank There should be sufficient amount of change
If a store needs the change, then junior clerk (smaller denomination) necessary required at
is sent to the bank with money from the till the store to avoid inconvenience.
and asked to change it into smaller However, in any case, change is needed, then
denominations. responsible designated official should be sent
There are chances of stealing the money on to the bank to bring the change and also it
the way or junior may misplace it, also he should be fully documented in and out of the
may steal the money by himself or even may till.
bring the change less amount as no
document is there for the change.
No segregation of duties The role of monitoring the cash receiving
One clerk is responsible for overseeing the should be continued to be done by the clerk
cash receiving and also responsible for the but another responsible official should
bank reconciliation on monthly basis. undertake the bank reconciliation.
Due to the work load, there are chances of Any differences should be identified on time
errors which may not be identified on time, and resolve it.
also increasing chances of fraud. Bank reconciliation should also be reviewed
by the senior responsible official.
Bank reconciliations are not always Finance controller should review the bank
reviewed reconciliations on monthly basis regardless it
Bank reconciliations are only reviewed by the is reconciled or not and should evidence the
financial controller if there are any review by way of his signature on it.
unreconciled amounts.
Even with the reconciliation, it may contain
significant errors like based on compensating
figures which may cancel out each other and
thus records may not be accurate/complete.