Question

Henry Mills is responsible for preparing checks, recording cash disbursements, and preparing bank reconciliations for Signet Corporation. While reconciling the October bank statement, Mills noticed that several checks totaling $937 had been outstanding for more than one year. Concluding that these checks would never be presented for payments, Mills prepared a check for $937 payable to himself, forged the treasurer’s signature, and cashed the check. Mills made no entry in the accounts for this disbursement and attempted to conceal the theft by destroying the forged check and omitting the long-outstanding checks from subsequent bank reconciliations.
Required:

What are some of the weaknesses of Signet Corporation’s internal control?

Answer 1

Some of the weaknesses of Signet Corporation’s internal control are:
(1) Segregation of duties:
Segregation of duties means separation of tasks to different employees is an
internal control intended to prevent fraud and error.
In this case, Henry mills is responsible for preparing checks, recording cash disbursements
and preparing bank reconciliation for signet corporations.
Hence, Segregation of duties is missing cashier and the person who prepares bank book
and bank reconciling are same, this will be the weakness of signet corporations internal
control, which permits Henry mills to do this theft.
(2) Internal check:
The concept of internal check has not been implemented in signet corporation,It means
Work of each employee is automatically reviewed by the another employee.