Question 1
(25 Marks)
Miggy {Pty) Ltd {hereafter "Miggy"), a local distributor of confectionaries, has asked your
accounting firm to evaluate their system of internal controls. The CEOof Miggy explained
the current system of internal controls to your colleague. Your colleague has since been
promoted to a senior position; therefore, she has passed on the information below to
you. You are expected to generate recommendations for the partner at your accounting
firm to share with the CEOof Miggy.
Since Miggy is a relatively medium-sized organization, they have a lot of faith in their long-
term employees. They have one accountant who takes care of all accounting and
administration matters which streamlines many of their processes. For example, in this
dual role, he purchases all of the supplies and pays for these purchases. He also receives
the cheques from customers and completes the monthly bank reconciliation.
The accountant is so busy that the company handles various functions a bit
differently. Petty cash is one such function. All employees have access to the petty cash
in a desk drawer and are asked to only place a note if they use any of the cash.
Wages/salaries payouts is another such function. On payday, the salary cheques are
picked up by the accountant and left in his office for employees to collect. Due to the
accountant's busy schedule, employees are welcome to help themselves by collecting
their cheques. However, before he leaves for the weekend, he will move the cheques into
a safe in his office.
The CEOis still quite embarrassed because he had to fire one of his employees for visiting
illegal websites on a company computer. He later found out this individual was a
convicted offender who served prison time for molesting children. The company had a
hard time getting the employee to admit it was him because the company does not assign
individual passwords to access the computer.
The CEO expressed his frustration because both he and the accountant interviewed and
approved all of the new hires in the company.
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