Question

A delivery truck driver for Coca-Cola delivers a shipment of merchandise to a corner store in Hartford. The driver does not collect any cash payment from the store, but instead gives the store owner an invoice with terms 2/10, n/30.

Describe two preventive- control-related reasons why the driver does not collect any cash.

Answer 1

Preventive Controls are designed in order to discourage errors or irregularities from occuring. They are proactive in nature and ensures that objectives of department are met.

1. Employee Theft: Companies prevent theft by employees by restraining them to collect cash. In this case the person who delivers the shipment is an outsourced delivery driver who is not a member of the firm. There is a possibility that he collects cash and runs off.

2.Approvals, Authorizations, and Verifications: In dealing with cash, companies aim to give approvals and authorizations to only certain set of people to collect cash. The verification becomes easy as an invoice has already been given and is recorded in company records the employees authorized to collect cash are thus liable for it and verification is possible due to invoice already with the buyer.

Detecting fraud becomes difficult if cash basis of business is done as entry into databse can be skipped for high volume retail businesses