The following describes the cash receipts procedures for a medium-sized online and catalog-based retailer. Customer payments come directly to the general mail room along with other mail items. The customer payments mail constitutes about 20 percent of the total mail received each day. The mail room clerks sort through the mail, open the customer payment envelopes, remove the customer checks and remittance advices, and reconcile the two documents. The mail room supervisor then sends the reconciled checks and remittance advices to the AR clerk, who posts the amounts received to the customer AR subsidiary ledger and the cash receipts journal from her computer terminal. The AR clerk then manually prepares a remittance list of all checks received, endorses the checks “for deposit only” and sends the checks and remittance list to the treasurer. Finally, the clerk files the remittance advices in the AR department. Once the checks and remittance list arrive at the Treasury department, the treasurer reconciles the documents, and manually prepares three hard copies of the deposit slip. Next, he sends the checks and two copies of the deposit slip to the bank. Finally, he files the third copy of the deposit slip and the remittance in the department. Required Identify the internal control weaknesses in the cash receipts process. For each weakness, describe the associated risks. For each weakness, provide a possible control activity.
The following describes the cash receipts procedures for a medium-sized online and catalog-based retailer.
Customer payments come directly to the general mail room along with other mail items. The customer payments mail constitutes about 20 percent of the total mail received each day. The mail room clerks sort through the mail, open the customer payment envelopes, remove the customer checks and remittance advices, and reconcile the two documents. The mail room supervisor then sends the reconciled checks and remittance advices to the AR clerk, who posts the amounts received to the customer AR subsidiary ledger and the cash receipts journal from her computer terminal. The AR clerk then manually prepares a remittance list of all checks received, endorses the checks “for deposit only” and sends the checks and remittance list to the treasurer. Finally, the clerk files the remittance advices in the AR department.
Once the checks and remittance list arrive at the Treasury department, the treasurer reconciles the documents, and manually prepares three hard copies of the deposit slip. Next, he sends the checks and two copies of the deposit slip to the bank. Finally, he files the third copy of the deposit slip and the remittance in the department.
Required
- Identify the internal control weaknesses in the cash receipts process.
- For each weakness, describe the associated risks.
- For each weakness, provide a possible control activity.
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