Analyze the current system and identify specific internal control problems. The cash receipts system starts when...

Analyze the current system and identify specific internal control problems.

The cash receipts system starts when the wholesalers send back the remittance advice with their payment. This allows Craig Nelson, the mail room clerk, to collect the payment from the customer and process the cash receipt. Nelson then records the cash receipts in the cash receipts journal. Nelson prepares the deposit slips for the funds to be deposited into the bank along with the checks. The remittance advice is sent to the general ledger department to update the accounts receivable records and is then filed in the billing department. Finally, Nelson prepares the cash receipt journal, out of which comes a journal voucher that is sent to the general ledger department.

Luis Gonzalez, the general ledger clerk, prepares the account summary and journal voucher, which is used to update the general ledger. The account summary and journal voucher is put into the files for record. Gonzalez uses the remittance advice copy sent from the mail room, the deposit slip copy from the bank, and the journal voucher from the account summary to reconcile the deposit slips. He then reconciles the deposit slips from the bank with the totals from the accounts receivable and mail room.

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Expert Solution

In this case Craig Nelson, the mail room clerk, is the only one person to collect the payment from the customer and process the cash receipt. He only prepares the deposit slips for the funds to be deposited into the bank along with the checks. The remittance advice is sent to the general ledger department to update the accounts receivable records.

Also Luis Gonzalez, the general ledger clerk uses the remittance advice copy sent from the mail room, the deposit slip copy from the bank, and the journal voucher from the account summary to reconcile the deposit slips. He then reconciles the deposit slips from the bank with the totals from the accounts receivable and mail room.

The major internal control problem here is of Internal Check. Only single person has been given the responsibility of entire cash management. Nelson in above case is the person who receives the remittance advice, prepares cash receipts and prepares deposit slips for banks. There is no Internal Check process involved and Nelson can very easily embezzle cash receipts without anyone's knowledge.

ekkarill92 answered 1 year ago

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