Cash Receipt Workflow
Question 1 B.
Identify the potential internal control weakness in the client’s procedure.
There are several potential weaknesses identified in the client’s procedure. The potential weaknesses are:
1. Separation of duties.
– The task for collecting and receiving payment is residing at two separate people. For the cash sales payment, the payment can be made straight to the cashier while payment via cheque and sale credit sales, the payment are made through the sales clerk. The task should be done to one person only as by centralising the collection of payment can be reconciled and tracked easily.
2. Credit limit check
– Currently, credit limit check for credit sale was done by the cashier after receiving the sales invoice for the sales clerk. The credit limit check should be done by the sales clerk before he/she issue a sales invoice to the cashier. This can save the buying process time since the checking are done at 1st stage of the purchasing been made.
3. Proper authorization to approve credit limit check
– Based on the flowchart the approval for credit limit check will be approved by the cashier. It is recommended that Platinum Sdn Bhd to have the credit limit check approval to be made by higher authority. The account department supervisor cum credit manager can be the approver for any credit sale. This can mitigate the risk of misuse of power.
4. Duplication of task
– As in cash receipt workflow, we can see that the task of reviewing remittance advices and cheque are made by both sales department supervisor and account department supervisor. This task can be done only by the account department supervisor. This is because the account department supervisor will review all the cheques for payment of past due account while the sale supervisor only review it without having any added value to the reviewing function. This can shorten the process and can avoid misunderstanding on reviewing both documents.
There are few weaknesses identified in the workflow activities. The weaknesses are:
1. Separation of task
– The task between bookkeeper 1 and bookkeeper 2 should not be separated. Both task can be group together in one staff. For example task of the bookkeeper 2 can be merged and done by bookkeeper 1. By merging 2 task that conducted by 2 separate staff into 1 staff, it can increase the company productivity.
2. No proper documentation
– This weakness is found under the warehouse clerk workflow. The clerk should prepare a daily of weekly report of item shipped to the customer. This can help the company to monitor movement of its product that are available in the warehouse. As the current workflow did not have any preparation of stock report, it is recommended that the warehouse clerk to prepare at a weekly basis report.
3. No proper control over cash receipt and stock
– In the current workflow, there is no reconciliation activities were made by any staff towards the sales and collection. This may lead to theft of cash and inventory. Reconciliation should be made against sales and weekly cash report prepared by designated staff to minimize the risk of improper conduct by the staff. However, the reconciliation should be made by someone who did not relate with the workflow.
4. Credit limit check
– Currently, credit limit check for credit sale was done bookkeeper 1 after receiving the sales order for the sales clerk. The credit limit check should be done by the sales clerk before they issue a sales order confirmation to the cashier. This can save the buying process time since the checking are done at 1st stage of the purchasing been made.
5. Billing errors
– In the warehouse clerk workflow, it is noticed that there is no verification been made before the shipment of the product. This may lead to pricing mistakes and billing customer for items not ship that may cause loss to the company due to deficiency during the shipment of goods. It is advisable that the verification of order should be made before the warehouse clerk sends the items for shipment. This verification should be made by other staff and not the warehouse clerk him/herself.
1. Approval of bad debt write-offs and the reconciliation of the accounts payable subsidiary ledger and the general ledger control account
– Approval of bad debt write-offs and the reconciliation of the accounts payable subsidiary ledger and the general ledger control account should not be separated. This is because the both ledgers are linked together. The write-offs of the bad debt usually done in account payable before the write-offs posted into the general ledger. If this function is separated, the accuracy of accounting data is not accurate. This is due to the account payable were updated according but it the general ledger the bad debt still exist. So for approval of bad debt write-offs, both ledgers should not be separated since both ledger have different roles and its related to each other.
2. Distribution of payroll cheque to employees and approval of employee time cards.
– Both functions should be separated. This is because if the both functions are not separated, it will lead to misuse of authority. For example, if the both functions are done by one officer, the officer may misuse his authority to approve the amount of payroll cheque which is different from the approved employee time card. By separating these functions, the risk of misuse of authorize can be minimized.
3. Posting of amounts from both the cash receipts journal and the cash disbursements journal to the general ledger.
– Both tasks should be separated from each other. This is because both different since one is to post the cash received and the other is to post expenses incurred. However, reconciliation should be done for both accounts to check whether the company’s financial situation is in strong position. This also will help the company monitor the financial situation so that it can minimize the company risk due to mismanagement of company fund.
4. Writing cheque to vendors and posting to the cash accounts.
– This task is very vulnerable to misuse of authority. Therefore, both tasks should be separated. This is because if the tasks were not separated, the person in-charge of both tasks may have the access to post wrong figure on the payment made. He/she may issue a cheque beyond the actual amount posted in to the cash accounts.
5. Recording cash receipts in the journal and preparing the bank reconciliation.
– Both functions should not be separated. This due to both function is relate to each other and usually reconciliation is done by the same person who recorded the cash receipt. If the tasks were separated, it may take time for the person to perform the bank reconciliation. This is because the source document for reconciliation is kept other person.
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