Question

List as many internal control weaknesses as you can find, and suggest a solution to every weakness that you find.

Revenue cycle, Accounts Receivable Clerk:

Q1	I have some questions about the accounts receivable function. How do you go about invoicing customers?
A1	When the accounts receivable clerks receive their copy of the bill of lading they begin the process of invoicing. Once it is prepared, a copy is sent to the customer together with a remittance advice to be returned with payment. An electronic copy of the invoice is used to update the Accounts Receivable subsidiary ledger and to prepare a journal voucher at the end of each day summarizing all the invoices issued. The journal voucher is sent to the bookkeeper for posting.
Q2	How do you get price information?
A2	We utilize a standard pricing list.
Q3	What are your standard billing terms?
A3	We bill at net 30.
Q4	Moving on to cash receipts, how does cash come in?
A4	The individual mail clerk opening the mail identifies customer payments and then sends both the remittance advice and checks to the cashier. The cashier prepares a receipts summary listing all check received during the day which is sent to the controller, the bookkeeper, and the accounts receivable clerks. The accounts receivable clerks file their copies chronologically and use the receipts summary to update accounts receivable subsidiary ledger.
Q5	Who posts to the general ledger?
A5	The bookkeeper is responsible for crediting cash for the cash received.
Q6	How does the actual cash get deposited?
A6	Cashier endorses the checks, prepares a deposit slip, and deposits the checks at the bank. After the deposit has been made at the bank the cashier passes a copy of the deposit slip stamped by the bank to the controller
Q7	Does anyone perform a bank reconciliation?
A7	Yes, the controller does it on a monthly basis.
Q8		Do you have a process for identifying unapplied cash?
A8		The system generates an unapplied cash report and an accounts receivable clerk is responsible for investigating it.
Q9		Finally, do you perform any screening process on customers on a yearly basis?
A9		Yes. An accounts receivable clerk performs a yearly Dunn and Bradstreet report on all active customers.

Answer 1

• Inadequate documentation / records:

Since only an electronic copy of the invoice is used to update the Accounts Receivable subsidiary ledger and to prepare a journal voucher, the documentaton does not appear to be adequate. Hardcopy of the invoice should be maintained.

• Lack of control with authorization of transactions

Since the individual mail clerk is only resposible for opening the mail and identifying customer payments, the activity must also be overseen in order to avoid frauds.

• Ineffective information systems

The information must be able to accessed by related departments. For instance cashier must be able to acces the mail of individual mail clerk inorder verify the details.

• Inadequate disaster recovery, backups

Since documents are maintained in electronic forms, and not as physical form, there is inadequate back up or recovery plans.