Which of the following is an example of an internal control related to the handling of checks?

• A. Allowing employees to sign blank checks for convenience
• B. Permitting the same employee to prepare, sign, and record checks
• C. Storing signed checks in an unlocked drawer
• D. Requiring two authorized signatures on checks above a certain amount

Answer: (D)

Verified step by step guidance

1. Understand the concept of internal controls: Internal controls are processes and procedures implemented by a company to safeguard its assets, ensure the accuracy of financial records, and promote operational efficiency. In this case, the focus is on internal controls related to the handling of checks.
2. Analyze the options provided: Review each option to determine whether it aligns with the principles of internal controls. For example, allowing employees to sign blank checks or permitting the same employee to prepare, sign, and record checks violates segregation of duties, a key internal control principle.
3. Identify the principle of segregation of duties: This principle ensures that no single individual has control over all aspects of a financial transaction. It reduces the risk of errors or fraud. Requiring two authorized signatures on checks above a certain amount is an example of segregation of duties.
4. Evaluate the importance of securing assets: Storing signed checks in an unlocked drawer is a violation of internal controls because it does not safeguard the company's assets. Proper storage and restricted access are essential to prevent unauthorized use.
5. Conclude that requiring two authorized signatures on checks above a certain amount is the correct example of an internal control. This practice ensures oversight and reduces the risk of fraud or errors in the handling of checks.