Question

As the internal auditor of the Sell Anything Group of companies, you have been asked to investigate the cash sales system of Stationery Ltd., one of the subsidiaries. Stationery sells office supplies in the Halifax area. Its prices are highly competitive and it offers a same-day delivery service for orders telephoned before noon. Costs are kept down by requiring cash on delivery. Sales are made in the following way:

1. The customer phones through an order to the sales department, which raises a pre-numbered multi-copy sales order, two of which (the invoice copies) are priced and totalled to verify the accuracy of the invoice.
2. The shipping department makes up the order using the sales order and gives the goods to the driver with the invoice copies of the order.
3. The driver delivers the goods, collects the cash, and receipts the customer’s copy of the invoice.
4. The driver returns and hands over the cash and the second copy of the invoice to the cashier.
5. The cashier records and deposits the cash.

What weaknesses do you see in the cash sales system at Sell Anything Group?

Sales order is used as a shipping document.

Cash collected by driver without the use of a point of sale terminal or cash register.

Invoices are priced and totalled.

Driver hands over cash and invoice to the cashier.

Cashier records and deposits the cash.

Accounting personnel does not seem to be involved in recording of the cash.

Answer 1

Weaknesses in the cash sales system:

Sales ordering

1.

Phone orders should be authenticated by requiring an order number. There should also be a check of the customer’s details to an approved customer list as well as a check as to the availability of inventory.

Dispatch of goods

2.

There do not appear to be any shipping documents produced. The sales order can be used as a shipping document. There should be a check that the goods shipped match the amount on the sales order.

Cash receipts

3.

There does not appear to be a cash register or point of sale terminal: these devices are indispensable. They provide:

Immediate visual display of the amount of the cash sale and the amount tendered;

A printed receipt for the customer and an internal record of the transaction;

A printed record of the day’s receipts.

4.

At the end of the day there should be an independent check of the total printed by the register with the amount of cash on hand.

5.

The cash should then be forwarded to the cashier’s department for deposit in the bank, together with the register or terminal printed totals.

6.

The total printed by the cash register and the validated deposit slip should be sent to general accounting to be entered in the cash receipts journal.

7.

An employee not otherwise involved in executing or recording cash transactions should perform periodic bank reconciliations.