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PART I

I. Executive Summary

Romney and Steinbart (2009) defined Accounting Information Systems (AIS) as a


system that collects, records, stores, and processes data to produce information for decision
makers. The definition refers to the system as a process infrastructure. The process could be
either a simple AIS without computer or a sophisticated AIS using computer (Romney and
Steinbart, 2009).

The objective of the project is to describe different transaction cycles of Santa Isabel Commented [AT1]: Of this paper

International School, Inc. and to provide an established automated accounting system for
practical use. The school currently applies a manual accounting system in most of its records.
For this study, the proponents will focus on the revenue subsystem for the collection of tuition
fees and its related documents. Both primary and secondary sources of data collection will be
used in generating relevant data for this study. Key informant interviews and observations are
to be done as needed. The group believes that the adoption of the accounting system will
enhance accountability and transparency of financial records and activities of the school.

The first part of this paper discusses a brief background and organizational structure of
the school. The second part examines the schools existing accounting information system. It
will also provide an analysis of the schools current internal controls and provide a summary Commented [AT2]: From pf to of

of recommendations on how the school could enhance the efficiency and effectiveness of its
controls. Furthermore, the last part of this paper is a preview of the groups proposed
automation of the revenue sub-cycle of the schools accounting information system.

II. Company Background and Structure

A. Mission

Santa Isabel International School, Inc. is committed to equip graduates with creative
intelligence, Christian ideals, and to be globally productive and competitive persons who at the
same time value individual differences and community service.

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B. Vision

Santa Isabel International School, Inc. is a learning institution dedicated to the Holistic
development of students for Academic excellence, Christian values, CO-curricular formation,
and functional Skills for all children. (HACCOS)

C. Goals

Santa Isabel International School, Inc. aims:

1. To employ qualified, well-rounded, and updated faculty to ensure quality education;

2. To enhance learning capabilities of students through the Montessori Methods of Education


by providing updated instructional materials and state of the art technological facilities;

3. To develop skills, self-confidence, self-esteem, and responsible personality based upon the
Christian values of formation anchored upon the values of Santa Isabel of Hungary;

4. To promote deep appreciation of Filipino arts and culture for national patriotism and love
of country;

5. To imbibe community awareness in current social issues to become socially proactive


member of the community; and

6. To develop functional skills to be able to survive and live a normal life with respect,
acceptability, and dignity

D. Brief History

The idea to put up a learning center by the couple Angel L. De Leon and Nanette G. De
Leon was inspired in honor of Mrs. De Leons mother, Doa Isabel Almario-Gorriceta. The
school was then called Santa Isabel Learning Center-Iloilo, Inc. and started during the first
quarter of 1997. It offered a Day Care, Summer-Pre School which was taught by the nurses of
the NG Review Center, Jaro, Iloilo City, which was in the same building as the school. The
first students enrolled were the children of the employees of the review center and some of
their friends children.

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The school was officially incorporated and registered in the Securities and Exchange
Commission as a Non-Profit Organization on May 19, 1997, which adopted the Montessori
Method of Education with the following Board of Incorporators:

President Angel L. De Leon, Jr.


Vice President Antonio D. Lasala
Corporate Secretary and Treasurer Nanette G. De Leon
Auditor Josette G. Lasala
Member Pearl Janet A. Gorriceta

The school then transferred to its present location in Mandurriao, Iloilo City, under Mr.
Andrew Hafner, the schools first Principal. Through the years, the school expanded to open
more offerings of grade levels from Pre-School, to SPED, to Grade 6. In 2001, Mr. Hafner
resigned and was replaced by Ms. Unette Bayani Lopez from 2001-2007.

On March 2002, Santa Isabel graduated its first set of grade schoolers, with 12 students.
The school then changed its name to Santa Isabel International Inclusive School on 2003, to
Santa Isabel Educational Systems, Inc. on 2004. On the same year, it was again changed to
Santa Isabel International School, Inc. as reflected in its SEC registration.

The High School program was opened in 2006, and the complete First Year to Fourth
Year was granted approval by the DepEd in 2008. In 2009, the school was chosen to be a
FAPE-GASTPE assisted school.

In 2012, CHED granted the school to expand to teaching tertiary education under the
name Santa Isabel College of Iloilo City. The first program to be offered was Bachelor of
Science in Real Estate Management which was in June 2013. After a year, they offered BS in
Accounting Technology, BS in Information System, BS in Tourism Management, and BS in
Entrepreneurship.

Presently, the schools principal is Dr. Nelson A. Pomado, and currently has over 200
students enrolled from Pre-School to Senior High School.

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E. Business Segments
Annex A
Geographical Location

Primarily, the school was opened at NG Review Center at A&N Building, 23 San Jose
Street, Jaro, Iloilo City in 1999. The school was then later transferred to Q. Abeto Street,
Mandrurriao, Iloilo City. The school has no other locations in which it does its major
operations.

Product Lines

As a non-profit educational institution, it offers educational services with international


standards to around two hundred (200) students. It collects tuition and miscellaneous fees from
students on an installment or per billing basis depending on the transaction. Besides collecting
tuition fees, the school also profits from its canteen, a separate operating segment. The canteen
is fully owned by the school and employs personnel to handle food services and maintenance
of the facilities. The school also has its official bus in which transportation fees are collected
from the students. Besides the following and other donations and grants given by third parties,
these are what usually comprise the revenues from normal operations by the school.

Below is the physical layout of the schools operating units:

Business function

Santa Isabel, like most corporations, also incorporates the organizational structure
which could be applied to foster effective separation of duties. Departments such as the
accounting, finance, treasury, marketing, ways and means, human resources, and faculty are

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just some of the structures present in the schools administration. The board of directors and
the executive committee are also present to develop technical managerial decisions.

Besides school fees, transportation fees from buses, and revenues from the canteen,
there are no more significant sources of revenues from the school.

F. Organizational Structure

The following are the various positions of personnel under Santa Isabel Learning
Center-Iloilo, Inc. and their job descriptions:

A. The school president advises the board but is not responsible for governance matters just
as the board advises the head but is not responsible for management matters.

B. The principal is the administrative and professional leader of the school and is directly
responsible to the superintendent for its successful operation. He/she should call upon all of
the resources of the school division to stress on the improvement of teaching and learning in
the field of educational leadership and supervision.

C. Besides the principal, school administrators at the elementary and high school levels
include assistant principals, and other professionals who help operate schools, either on the
school's campus or at the school district's central office. Their duties include coordinating the
class curriculum, setting school budgets, and helping with behavior management.

D. The registrar maintains student records, either in schools or in school system offices.

E. The marketing head has duties of preparing, planning and managing the publication of
all publicity material to maximize the promotion of the school services by creating and
developing innovative ways to communicate message to clients.

F. The head of budget and finance is accountable for the financial integrity of the
administrative department by adhering to the budget of the schools financial reporting system
and the overall control and responsibility of for all financial aspects of the school. As a head of
the schools financial department, the budget and finance head take the overall control of the
accounting function by approving the budget for purchase, affirm the amount of aggregate
disbursements and substantiate revenues and receipts.

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G. The cashier is a part of the accounting department and is responsible of handling only
those tasks that involve cash transactions. They issue official receipts to the clients that come
to the counter for payment of tuition fees.

H. The payroll officer is a person who calculates and distributes payroll to employees. A
significant duty of a payroll officer is to configure payroll taxes such as Philhealth, PAG-IBIG,
Social Security taxes, and withholding taxes.

I. The disbursing officer has a role of disbursing or otherwise disposing of the school
monies under current rules and regulations. He has been entrusted to draw bills to pay for
services rendered or supplies purchased for the school.

J. The bookkeeper maintains records of financial transactions by establishing accounts and


posting transactions to keep an official track of the schools revenue and spending. He also
prepares financial reports by collecting and analyzing accounting information and trends.

K. Year Level Coordinators are leaders of a team of homeroom teachers with special
responsibility for the pastoral care, welfare and contentment of students at that level.

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Organizational Chart of Santa Isabel

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G. Overview of the Accounting Department

Like most private schools, Santa Isabel International School is a not-for-profit


organization that aims to develop bright minds of the future. In meeting this objective, they
have to provide proper accounting of resources coming from the receipts and disbursements
they have recorded. To provide a clear view of this process, this part of the paper will discuss
the general characteristics of the following: Flow of resources coming in and coming out of the
organization, members of the accounting department and their job description, and a brief
description of accounting policies employed.

For a small school like Santa Isabel, it reduces its clerical costs and eases its accounting
process by maintaining bank accounts; one account for all receipts of revenues and one account
set up for disbursements. The disbursements account is set up by using the funds coming from
the revenue account. This process employs the imprest system of accounting wherein all cash
receipts and disbursements are carried out by the use of checks in order to minimize
susceptibility of cash being stolen or misappropriated.

Revenues of the school are derived from various sources such as: fees collected during
enrollment period, tutorial services, miscellaneous school services, cafeteria, and others.
Although there are several sources of revenue, the primary focus of this paper will be on the
revenue cycle specifically for the collection of tuition fees, the schools major source of
revenues. In addition, the company accounts for these funds when the parent/guardian pays the
tuition fee in full, on installment basis, and if the parent/guardian requests for a refund.

Compared to the accounting of the schools revenue, accounting for its expenditures is
a much more complicated process. As mentioned earlier, the company maintains only one bank
account for its disbursements. This means that all of its disbursements whether large or small
is accounted for using a check voucher system. The complex accounting for disbursements is
due to the necessary procedures done prior to the actual disbursement of cash. Further
explanations of this part is discussed thoroughly in Annex B of this paper under the accounting
operations part.

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In addition to the facts provided above, the accounting department of the company is
composed of only four members, namely: Head of Budget and Finance, Cashier, Bookkeeper,
and a Payroll Officer.

The figure above shows the physical layout of the accounting department of Santa
Isabel International School Inc. The whole accounting department is placed on a single cubicle
where all of its members except the Cashier/Front Desk officer is located.

Inside the cubicle is where accounting records are also stored. All of the officers have
their own working area. The Cashier/Front Desk Officer is located outside the cubicle of the
accounting department and usually accommodates all inquiries from all those concerned.

Annex B
Accounting Operations

Accounting for revenues and disbursements are the two major accounting operations of
the company. Its revenues is composed of tuition fees, school bus/service fees, tutorial services,
and cafeteria food sales. Disbursements on the other hand are being budgeted and being

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approved for disbursements by the head of the budget and finance in the accounting department
each school year or whenever necessary.

In order to account for these resources, a parent or guardian enrolling his/her


son/daughter during this period needs to accomplish a registration form which contains basic
information about the student regarding his/her name, address, age, and the like. Every school
year, the school requires three copies of this source document. One for the teacher, one for the
cashier, and another for the registrar. Lastly, in order to account for the tuition, the parent can
either pay right away, pay on installment basis, or they could ask for a refund.

Accounting for the schools disbursements is not as easy as accounting for its receipt
of revenues. Before making actual expenditures, each department is required to propose its own
budget of expenses to the head of Budget and Finance before the start of the school year. When
a department needs funding for purchasing school materials, plant assets, or to fund a school
program, the requestor needs to fill up a purchase request form and submit it to the accounting
department where the Head of the Budget and Finance carefully examines the request. After
the finance department examines it, it submits it to the bookkeeper and cashier for the issuance
of the check in the check voucher. Next, the request together with the check voucher copy goes
back to the Head of the Budget and Finance for final inspection and issuance of the check.

Minimal and miscellaneous expenses of the school are being accounted using a petty
cash system under and Imprest system. Whenever the school has unforeseen and immediate
expenses, they are submitted to an Executive Committee in order for them to review and
examine the expense to be incurred because these expenses are not included in the budget.
Salaries expense as well as benefits like PAG-IBIG, PhilHealth, and SSS of the faculty and
staff of the school are being accounted by the Payroll Officer. Lastly, the school requires a
liquidation report to be passed for advances to departments for purchases.

Currently, the school implements a manual system to account for its revenues and
expenses incurred. During the enrollment period, the registrar transfers the basic information
from the source document to an excel file but does not backup the file in an external drive.

Lastly, because the school employs a fiscal period of accounting that starts from June
and ends in May, it is required to submit all the forms required in the Bureau of Internal
Revenue in the month of September.
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Staff Competencies and Performance of the Accounting Department

During the interview conducted by the proponents, the school does not have a defined
program to strengthen the competency of each member of the Accounting Department. Also,
the company does not have a defined module that enumerates the qualities/skills required in
any member of the accounting department rather, it hires employees when needed and posts
the requirements during the hiring period.

Job Description of Personnel

The following are the four members of the Accounting Department and their respective
job description:

A. Bookkeeper Posts all transactions in the ledger and submits financial reports to the
President and the Administrator. He/she works closely with the external auditor for auditing
purposes.

B. Cashier Receives all payments made to the school. He/she releases exam permits and
clearances.

C. Head of Budget and Finance Monitors expenses and makes sure it does not exceed the
budget allocated. He/she maintains the financial record of all co/extra-curricular activities of
the school

D. Payroll Officer Manages the salaries of employees together with its benefits like PAG-
IBIG, PhilHealth, and SSS. He/she is also in charge of the remittance of withholding taxes to
the BIR.

Accounting Policies and Procedures

1. The company keeps two separate bank accounts: one for revenues, and one for
disbursements. This is to facilitate the ease in monitoring the flow of cash and the preparation
of bank reconciliations.

2. The company has a purchasing and disbursing system that is currently in use. Every
start of the school year, each department is asked to prepare a flowchart of their forecasted

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expenses for the year, including a budget for these expenses which is to be approved by the
head of the budget and finance. Once these are in place, purchase orders forms are filled up
and approved by appropriate officers when the need for the budget arises. This goes through a
series of approvals moving back and forth from the requesting department to the budget and
finance department, and sometimes even to the administration and executive committee.

Finally, when the disbursement check is approved, it will be released to the requesting
department to be encashed and used. After the necessary expenses, the requesting department
will prepare a liquidation report to make sure that the disbursements were expensed properly.

Part II.

III. Review of the Existing Accounting Information System

A. General Overview

Currently, Santa Isabel implements a manual accounting system to process its


transactions. There are two main concerns the school faces in terms of its transactions. First, is
accounting for its revenues which consists of tuition fees, school bus service revenues, tutorial
services and income coming from their school canteen. Second, is accounting for their
expenditures which requires a more complicated process.

In the revenue side of the accounting department, the school employs a manual system
for collection of fees and registering an incoming student during enrollment period. The manual
process also applies to other revenue generating activities of the school like having a school
service for students, tutorial services, and school canteen sales which are independent from
tuition fee collection.

On the other hand, the school employs a budgeting process for their expenditures for
the whole school year. The budgeting process requires each department to submit a budget
report to the Head of the Budget and Finance for approval. Actual expenditures will then
require permission from appropriate units before it can be done. Accounting for payroll is also
being manually done though the school implements a biometric system for their time-in and
time-out. All these process will be thoroughly discussed in the following discussions.

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B. Transaction Cycles

Transactions by Santa Isabel go through a series of documents authorized by different


officials just like any other corporation. As an educational institution, two main cycles, the
revenue and expenditure cycle, run the whole transaction cycle of Santa Isabel. Managing the
transaction cycle with appropriate controls will allow the school to operate more efficiently
and effectively.

1. Revenue Cycle

Tuition Fee Processing

Registrar

The revenue process begins with a parent filling up three copies of registration forms
obtained from the registrar. One copy of the filled registration is given to the cashier, another
one is to the parent, and a last copy is to the registrar together with the supporting student
documents must be provided. All student information that was obtained by the registrar must
be compiled to determine the accountability for students. A list of students in a student register
with their accompanying tuition fee invoices must be kept in the registrars file.

Billing of the Cashier

The next step is to bill the customer. This task is assigned to the cashier. A copy of a
student register is needed by the cashier and a tuition fee invoice must be issued to the parent
to account for the total revenue from tuition collection which is to be recorded in the revenue
record and handed over to the head of the budget and finance. A copy of the invoice and student
register is kept in the file of the cashier.

Accounts receivable records

A student register copy is handed over to the head of the budget and finance to update
the accounts receivable records. A student register is kept in the file as the basis for the list of
the students with existing accountabilities.

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Tuition Fee Processing Flowchart

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General Ledger

Student records with accountabilities are recorded in the accounts receivable subsidiary
ledger. Account summaries are sent to the general ledger record of the Head of Budget and
Finance

Student Scholarship Processing

Registration

First, the parents shall submit the student documents together with any of the following
scholarship grants, school scholarship certification, private scholarship certification, or subsidy
from the government certification to the registrar. These documents are kept in a file and upon
enrollment, a copy of these documents must be used as a basis for the accountability of students.
A copy of the list of the students and their corresponding accountabilities shall be kept in a file
as a record of the registrar

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Cash Receipts Processing

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Cash Receipts

Payments are obtained directly by the cashier from the parent. Upon receiving cash, the
cashier will record it in the cash receipts journal and will issue copies of the official receipt
which is to be given to the parent and a duplicate copy is to be kept in a file.

Cash deposits

The total cash received is handed over to the liaison officer who is given the authority
to deposit it in the bank. The original deposit slip is given to the bank for deposit while another
copy is to be kept in a file for future references.

Accounts receivable

A copy of the official receipt is given to the Head of the Budget and Finance to update
the accounts receivable records which will reflect the existing accountabilities left due to
installment payments after partial payments were received.

General Ledger

Upon the receipt of cash and after posting the transactions in the accounts receivable
subsidiary ledger, the information obtained is then posted to the general ledger.

School Transportation Service Process

Santa Isabel provides school services to its students that need transportation to and from
the school. In order to avail this kind of service, the school records this by getting information
from the parent of the student through an application form provided by the school. The
application form is then filled up in the administrative office and forwarded to the cashier for
billing. The school collects monthly service fees from the parent and upon application. The
cashier then issues three copies of official receipts, one for the parent, one for the administrative
office for updating its records, and the other one for the parent for his/her own copy.

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Tutorial Services Process

Another revenue generating activity of the school is providing tutorial services to its
students during weekends or weekdays after classes. The flowchart for this kind of service is
similar to providing transportation services to its students, but the parent has the option to defer
the settlement of its account before the start of each examination period of the school. The
process starts when a parent decides if he/she should enroll his/her child to tutorial sessions
provided by the school. To do this, the parent needs to fill up a registration form in three copies
provided by the registrar. One copy goes back to the parent, another goes to the cashier and the
last copy goes to the storage file of the schools registrar or the schools administrative office.

After this process, the school registrar issues a tutorial service invoice to the billing
department or the schools cashier for billing purposes. During this process, the cashier issues

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a billing statement to the parent for the amount due. And the parent gets to decide whether to
pay in that instance or defer the settlement of his/her payment on or before each of the schools
examination period. The billing department or the cashier for that instance gives the copy of
the student register form to the accounting department for updating the account receivable
account and file this to its accounting records. It is important to know that the settlement of
accounts receivable by the student is lumped together in the cash receipts process of the school.

2. Expenditure Cycle

Santa Isabels expenditure cycle primarily composes of two main systems, mainly: the
payroll system and cash disbursement system for ordinary school activities. Before a
department can actually incur expenses, it first needs to issue a budget report and have it
approved before the start of the school year. This is done so that proper amounts can be included
in the annual budget report of the school and the departments will gain funding from to support
their annual operations or activities. Subsequent and unbudgeted expenditures will undergo a
similar process for further consideration.

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Payroll System

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Payroll System
Services

The number of hours worked enter the payroll department from the biometrics machine
which shows the hours worked by the employee from time-in to time-out.

Payroll

The payroll department then reconciles this information and calculates net pay for the
paycheck including overtime pay and various deductions. The officer also updates the
employee records.

Accounts Payable

The bookkeeper receives the payroll summary information from the payroll department
and authorizes the bookkeeper to issue a check for the amount of the total net pay. Individual
checks are not handed out to each employee because the school issues only one check for the
total net pay of each employee.

Cash Disbursement

After the issuance of the check, the payroll officer distributes the cash to the employees.
The accounting department authorizes this cash disbursement through the bank. The
bookkeeper both authorizes and issues the check.

General Ledger

These information are then posted to the general ledger from the accounts payable and
payroll voucher files.

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Insert Pic

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Cash Disbursement System

Accounts Payable

The bookkeeper checks the accounts payable voucher for liabilities due and sends the
voucher, with supporting documents, to the cash disbursement officer.

Cash Disbursements

The cash disbursement officer records the amount and the check voucher number in a
check register. The check voucher numbers are not pre-numbered by the school. Instead, they
record the voucher number in accordance with the check number. The check is then signed by
the president and issued by the bookkeeper. The cash disbursement officer then sends a journal
voucher to be recorded in a general ledger. Upon receipt of payment, the bookkeeper records
the payment of accounts payable and inputs the check number in the check register.

General Ledger

The bookkeeper then sends the accounts payable summary to the general ledger
department based on the vouchers.

IV. Analysis of Internal Controls

A. Tuition Fees

Accounting Records

In the process of enrollment, students fill out 3 copies of the same form to be used by
the registrar and the cashier. The tuition fees are paid to the cashier, and daily deposits to the
bank are made by the bookkeeper. However, the deposit slips and the official receipts are not
reconciled to see if they tally the same totals which is a high control risk. Although the ORs
are pre-numbered, there is still a risk for fraud since the bookkeeper, who deposits the daily
collections, does not get ahold of both the ORs and the deposit slips for reconciling.

Segregation of Duties

For accounts still due, the cashier will prepare an AR due slip (notice of tuition still
due) which will be given to the teacher, and then given to the parent. There is a loophole in this
process since the AR due slips are not pre-numbered. This may arise to multiple copies of only

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one AR account due. Another loophole may also be that the AR slip due given may be
overstated and go undetected since the cashier is the one issuing the slip, and the one collecting
the amount.

B. Payroll

Segregation of Duties

In the payroll process, a biometrics system is installed for the time-in and time-out of
the employees. However, this system is not connected to any automatic computer program in
the computer of the payroll officer which will automatically compute the salaries. Instead, the
payroll officer takes the information from the biometrics system, and manually computes the
salaries. In short, the machines purpose is only to record the number of hours logged in.

The payroll officer then gives the salary information to the bookkeeper who will write
the lump sum check for the salaries. The bookkeeper will then give the check to the president
for signatory, and will encash the check in the bank. The cash will then be given to the payroll
officer who will distribute the salaries to the employees. Since this amount is computed,
encashed, and distributed by two persons, this can lead to collusion between the two employees
which will lead to fraudulent issuance and disbursement of checks.

There is a high risk of fraud in this process because of lack in segregation of duties and
the potential for collusion between the two officers involved. There needs to be a fine line
between the issuance and authorization of checks.

Independent Verification

There is no evidence of additional verification and checking of the final amount of the
lump sum check being issued. This raises a great concern since every task in the process is put
in the trust of the payroll officer and the bookkeeper.

In this regard, there is a high risk of fraud in the payroll system because as mentioned
earlier, the two officers can collude and misstate the amounts in the payroll.

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Pang, I footer na lang ni guro? Kay na remember ko nga sang sadtu, naghmbl si maam
something about using logo nga lain kuno or bawal. But IDK lang gid

Recommendations:

Payroll controls and procedures prevent employees from accessing confidential


information. Effective internal controls also prevent employees from embezzling money and
falsifying employee records. Here are the following recommendations for the payroll system
based on the assessment of the proponents:

1) Limit Access to Payroll Records - The payroll officer must be the only one who could
access payroll records and processes.

2) Inspect Payroll Records - The head of Budget and Finance must regularly check
payroll records to make sure that everything is accurate. This may be done monthly just
to ensure that the payroll officer does not make any mistakes.

3) Separation of Duties - There must be only one person prepare the payroll (payroll
officer), another authorize it (accounting department), and another create payments
(disbursement officer), thereby reducing the risk of fraud and collusion.

4) Payroll Records Must Be Audited - If the institution sees it fit, they should have their
payroll vouchers and records audited to assure that the right amounts are being paid to
the employees and tax agencies

5) Open a Bank Account for Payroll - The school currently has two bank accounts, one
for receipts and the other for expenditure. To build extra security, the school may open
another bank account designed only for the purpose of disbursing checks for payroll.
The bank account may only be funded by the amount of payroll; no more, no less. This
prevents an employee from issuing a check of a larger amount or creating an entirely
new one.

C. Purchases / Cash Disbursement

Segregation of Duties and Supervision

Currently, purchase requests are being handled by the bookkeeper. A purchase


requisition form is given to him by the requesting department for his approval. He will then
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Pang, I footer na lang ni guro? Kay na remember ko nga sang sadtu, naghmbl si maam
something about using logo nga lain kuno or bawal. But IDK lang gid

issue a check, give it to the President for his signature, and encash the same in the bank which
will then be given to the requesting department.

There is a high risk of fraud in this process since the bookkeeper is the sole officer
responsible for the approval, issuance, and encashment of purchase request checks. This may
be done by him through an overstatement in the check issued, which, when encashed, he may
possibly embezzle the difference between the requested amount and the issued amount by
misappropriating it.

Furthermore, there is no one assigned to be the petty cash custodian for small expenses.
This is important since the daily operations of the company need not be made through formal
purchase request forms and daily expenses are usually unplanned and not part of the budget
proposals.

Transaction Authorization

There is an obvious lack in transaction authorization in the process of cash


disbursements since as mentioned earlier, the bookkeeper does every step in the process. The
bookkeeper does not verify whether the disbursements have been approved by proper officials.
The bookkeeper only does what the department head tells him and he secures the signature of
the president.

Accounting Records

Purchase vouchers are not pre-numbered in the current system. This is a medium for
potential fraud because multiple copies may be reproduced for a single transaction, or some
legitimate copies may be unaccounted for. Because of this, cancelled vouchers do not exist for
the institution. Another problem might occur when a transaction was journalized for a cancelled
voucher but then the voucher could not be found in the physical records anymore. Therefore
there is no way to verify whether these transactions actually exist.

Moreover, no monthly reports, like bank reconciliation, are made. This gives way for
fraudulent transactions to be undetected. For example, the bookkeeper may borrow company
money for personal use by withdrawing from the bank using unauthorized transactions and
deposit the borrowed money the next month. These type of transactions may go undetected as
long as bank reconciliations are not made. Control risk may be high since the bookkeeper has
the power to approve requests, issue checks, and encash them.

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Pang, I footer na lang ni guro? Kay na remember ko nga sang sadtu, naghmbl si maam
something about using logo nga lain kuno or bawal. But IDK lang gid

Recommendations:

The objectives of internal controls for cash disbursements are to ensure that cash is
disbursed only upon proper authorization of management, for valid business purposes,
disbursements are properly recorded, and that these are carried out by proper officials. Thus,
here are the following recommendations to carry out these objectives:

1) Segregation of Duties - The duties of authorization (signing a check), custody of assets,


and recordkeeping should be separated so that one individual cannot complete a
transaction from start to finish. One huge red flag is that the duties assigned to the
bookkeeper cover a lot of responsibilities. What the management could do is to first
assess the current duties of the bookkeeper and impose limitations on his
responsibilities thereon. Practically speaking, the school also needs to hire additional
personnel in the finance/accounting department in order to carry out separation of
duties.

2) Review Authorized Signatories - The institution may practice the double signatory
system to ensure proper authorization of expenditures. These may require signatures
from the President and the Head of Budget and Finance. Undergoing the process of
proper authorization would reduce the responsibility and liability of the bookkeeper.

3) Timely Bank Reconciliations - Currently, the accounting department only does their
bank reconciliations annually at year end. Preparing bank reconciliations with an
interval of one year would allow various unusual transactions to go unrecognized. Bank
reconciliations may be done monthly by an officer independent from the cash
disbursement or asset custody.

4) Physical, Mechanical, and Electronic Controls - Physical controls relate primarily to


the safeguarding of assets while mechanical and electronic controls safeguard assets
and enhance the accuracy and reliability of the accounting records. Physical controls
by the school may be applied to the extent of security applied to its vault. In which case,
if the cashier is absent, she may easily hand over the key to another officer not
necessarily designed to safeguard the vault.

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Pang, I footer na lang ni guro? Kay na remember ko nga sang sadtu, naghmbl si maam
something about using logo nga lain kuno or bawal. But IDK lang gid

5) Independent Internal Verifications - Independent internal verification involves the


review, comparison, and reconciliation of data prepared by employees. These
verifications should be made periodically but may also be done on a surprise basis. The
schools current internal auditor may carry out this task and identify the discrepancies
and exceptions that should be taken into account to assess the level of appropriate
corrective action. Considering the various red flags of the internal control of the school,
the internal auditor needs to carry out his task more efficiently to properly evaluate the
effectiveness of the schools internal control procedures and to assure that these are
being carried out.

6) Liquidation Report - The finance officer should require the requesting department to
issue a liquidation report of the expenses from the approved purchase request. This
report should be accompanied by receipts and pre-numbered purchase vouchers signed
by the payer to further assure that the expenses stated are in fact spent according to the
budget. This way, the company can assure that all expenses are accounted for,
unexpended cash is returned, and fund accounting is properly adhered.

7) Petty Cash Fund The school should establish an imprest petty cash system to manage
the daily trivial expenditures made by the company. This way, a purchase request form
will not be necessary for petty expenses. A custodian will be responsible for the petty
cash fund and the replenishment shall be made after accounting for all the expenses
made out of the fund through expense vouchers.

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Pang, I footer na lang ni guro? Kay na remember ko nga sang sadtu, naghmbl si maam
something about using logo nga lain kuno or bawal. But IDK lang gid

V. Summary of Recommendations

A. Proposed Documents

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Pang, I footer na lang ni guro? Kay na remember ko nga sang sadtu, naghmbl si maam
something about using logo nga lain kuno or bawal. But IDK lang gid

The figures presented are the proposed document formats and layouts by the
proponents. The school should have separate books for the high school and elementary
departments for their respective journals and ledgers.

B. Recommendations for Sound Accounting Policy and Practices

The proponents suggest to redefine the personnels responsibilities. This is to properly


assign tasks in order to avoid overlapping of responsibilities and to control fraud.
Responsibilities of personnel are discussed below.

Bookkeeper She is assigned to record the transactions and prepare the financial
statements. She is assigned to require proper documents from other departments. She
must not record any transactions not authorized by the head of budget and finance
department. She will provide a timely bank reconciliation. The bookkeeper should
never handle any cash transactions.

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Pang, I footer na lang ni guro? Kay na remember ko nga sang sadtu, naghmbl si maam
something about using logo nga lain kuno or bawal. But IDK lang gid

Cashier She is assigned to collect receipts of tuition fees and other cash receipts from
different departments. She will also provide documents to the bookkeeper for bank
reconciliation purposes. The custody of money should mainly be assigned to her.

Purchasing and Fixed Assets This department will prepare voucher requests to the
department of budget and finance to fund purchases.

Payroll This department is tasked to compute the salaries of the personnel. The
Payroll officer should be required to reconcile the daily time in and time out from the
biometrics and regularly check the computation of net pay in the payroll register.

Budget and Finance This department will authorize transactions and prepare annual
or interim budget. The bookkeeper will never record transactions without proper
documents and authorization from the head of department of budget and finance. The
department head will prepare the budget for the year and track any variances from the
budget.

The proponents suggest to have a more systematic petty cash fund system for supplies
to control the minor disbursements. This fund will be authorized by the head of department of
finance and will be the responsibility of the purchasing and fixed assets department. The
proponents suggests pre-numbering vouchers and monitoring of page number on the journals
and ledgers. The proponents also suggest asset tags on equipment for tracking purposes.
Purchasing of asset and its custody must be performed independently. Finally, in order to
comply with accounting standards, the proponents suggests fund accounting used in private
schools to be followed by the school.

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