[Anonymous]

An entity’s internal control requires for every check request that there be an approved voucher, supported by a prenumbered purchase order and a prenumbered receiving report. To determine whether checks are being issued for unauthorized expenditures, an auditor most likely would select items for testing from the population of all:

a. Purchase orders.

b. Approved vouchers.

c. Canceled checks.

d. Receiving reports

The answer is C. What’s the point of this procedure? If the check has already been cancelled what good does it do to test them and see if they were unauthorized? To find the perpetrator? Can someone please explain.

Wouldn’t it make more sense for the population to be outgoing checks or something? Match all outgoing checks with the proper docs and approval? Wouldn’t the missing matching documents to outgoing checks show that there is an unauthorized expenditure? I just don’t see the point of testing cancelled checks, isn’t that redundant?

[Missy]

No. The auditor is only trying to establish if internal controls are working properly, they're not trying to catch a crook or find the source of the irregularities.

If a check gets cashed that wasn't properly authorized, internal controls aren't working as intended. Increase substantive testing.

An auditor is never going to catch every failure of controls, and just because an internal control was able to be circumvented doesn't mean foul play.

If you tested only outstanding checks, pretty easy to avoid being caught by making sure all unauthorized checks are cashed long before year, end.

Licensed Massachusetts Non Reporting CPA since 2012
Finance/Admin/HR Manager

[Author]

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