Case 4 - Exercise 4-2 (a) INTERNAL CONTROL - PRELIMINARY ANALYSIS CLIENT: Lakeside SYSTEM: DATE: 10/11/12 PREPARED BY:

List each document found in this system, the number of copies, and whether it is prepared internally or externally. Bank Reconciliation: prepared internally and one copy per month Invoice Slips: prepared internally with one copy per payment Validated Bank Deposit Slips: prepared internally and there are two copies per day Sales Invoice: prepared internally Cash Remittance List: prepared internally with four copies per day Bank Statement: prepared externally with one copy a month Answer each of the following questions. For each "No" answer, comment on whether an internal control weakness is indicated. QUESTION | YES | NO | COMMENT | (1) Is each document within this system pre-numbered? | | X | None of the documents other than the sales invoices and bills of lading are renumbered | (2) Is the authority for completing each document clearly delineated? | X | | | (3) Are all documents subsequently reviewed by an independent party within the company? | | X | The bank reconciliation form was not reviewed by the Assistant to the President | (4) Are appropriate procedures clearly spelled out for completing and reviewing each document? | | X | There are no instructions when discrepancies are found in the statements. | (5) Is the record-keeping function independent of the custody function at all points throughout the system? | X | | | (6) Are all mathematical computations independently verified? | | X | Sales discounts are the only exception. It is not the same as the customer’s payment. | (7) Does record-keeping begin at the origin of the transaction? | X | | | (8) Are all transactions authorized? | X | | | (9) Indicate any other specific internal control features that have been built into this system. Other specific internal control features that have been built into the system are that checks are immediately stamped “For Deposit.”

(10) Indicate any other specific internal control weaknesses that appear to be present in this system. Invoice slips are filed by invoice numbers in the sales division instead of by customer names. Therefore locating invoices might be difficult and troublesome in the future.