Which of the following reflects a weak internal control system?

• A. All transactions are authorized and reviewed by supervisors.
• B. Bank reconciliations are performed regularly by independent staff.
• C. One employee is responsible for both recording and processing cash receipts.
• D. Duties are clearly separated among employees.

Answer: (C)

Verified step by step guidance

1. Understand the concept of internal control systems: Internal control systems are processes and procedures implemented by an organization to ensure the accuracy and reliability of financial reporting, safeguard assets, and promote operational efficiency.
2. Identify the characteristics of a strong internal control system: These include authorization and review of transactions, regular bank reconciliations by independent staff, clear separation of duties, and ensuring no single employee has control over multiple critical functions.
3. Analyze the options provided: Evaluate each statement to determine whether it reflects a strong or weak internal control system. For example, 'All transactions are authorized and reviewed by supervisors' and 'Duties are clearly separated among employees' are characteristics of strong internal controls.
4. Focus on the problematic scenario: The statement 'One employee is responsible for both recording and processing cash receipts' reflects a weak internal control system because it violates the principle of segregation of duties, increasing the risk of errors or fraud.
5. Conclude the analysis: Recognize that the lack of segregation of duties in the problematic scenario undermines the effectiveness of the internal control system, making it a weak point in the organization's financial processes.