In planning and performing my audit in Manhattan Company financial statements as at the year ended December 2010, I considered the company’s internal controls. The analysis of internal control over the financial reporting formed the basis of the audit design, and procedures for the purpose of expressing my opinion on the financial report. The audit was conducted using the generally accepted accounting principles in the United States of America.
My considerations of internal control were for the reasons expressed in the previous paragraph. My firm might not have identified all the company’s deficiencies in internal control that may have serious deficiencies of material weakness. However, as described below, I identified some certain deficiencies in the internal control that would be considered viable deficiencies. In a study by Rittenberg et al (2010) a flaw exists where operations of control or design do not let the employee or the management detects misstatement.
It was notable that the account payable clerk can create, add or delete vendors in the account received module. The clerk has the access of the checks signing module. Checks are again mailed by the same account receivable clerk. Checks are, however, promptly endorsed “For Deposit Only,” but no preparation of such record by the person who opens the mail. Either the employee or the cashier open the mails and is also responsible for maintaining accounts receivable records. The cashier, however, deposit into the bank mail received every week.
My firm came up with the recommendations. The company needs to segregate handling of receipt and deposit functions away from record keeping functions. That is recording of transactions and reconciling accounts should be done independently. The firm needs to separate payable function from purchasing functions. The management should ensure that the same person is not allowed to write and sign checks. When clerks open mail, endorse or stamp checks “For Deposit Only” and list checks on a log before turning them over to the person responsible for depositing receipts. Make frequent deposits, at least weekly. It is indispensable to periodically reconcile the incoming check log against the deposits. Finally the company management should strive towards automating cash receipts processes according to (Rittenberg 2010).
This report is intended solely for the information and use by Manhattan Company management. The audit and reporting is not intended to be and should never be used by anyone else other than the named party.