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CMA Intermediate · Corporate Accounting and Auditing · Audit Risk, Internal Control, Internal Check and Internal Audit

In the cash receipts section of Kaveri Traders Ltd., one clerk opens the mail, lists cheques received, deposits them in the bank and also posts the customers' ledger. Which weakness in internal check does this most directly show?

The weakness is the lack of segregation of duties: the same clerk handles the cheques and also posts the customers' ledger. Because custody and recording are combined, no one independently checks the work, so a misappropriation could be concealed by altering the ledger.

  1. ALack of rotation of the bank reconciliation duties
  2. BAbsence of segregation between custody of receipts and the recording functionCorrect
  3. CExcessive use of automated controls
  4. DFailure to prepare a budget for cash collections

Explanation

The clerk has custody of receipts (listing and depositing) and also records them in the customers' ledger. Internal check requires these functions to be split so that one person's records check the other's. Rotation, automation or budgeting are not the weakness described.

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