CASE 2: MEDIUM-SIZED

ONLINE AND CATALOGUEBASED RETAILER

ASSESSING INTERNAL CONTROL

REQUIRED
1. Identify the internal control weaknesses in the cash
receipts process.
2. For each weakness, describe the associated risks.
3. For each weakness, provide a possible control activity.

MAILROOM
WEAKNESS: All sorts of mail items including customer payments
(comprising of 20% of total daily mail) go directly here. As such, the
mailroom clerks have access to checks and remittance advices.
They even prepare the reconciliation for the two documents.
RISK: The mailroom clerks have the capacity to commit employee
fraud such as stealing the checks and destroying the remittance
advices leaving no record of the actual transaction.
CONTROL: Provide for a separate address for regular mails,
payments for customers and even payments to suppliers. With this,
proper segregation of mails are ensured and similar kinds of mail
can be controlled easier through supervision.

ACCOUNTS RECEIVABLE
WEAKNESS: Receives only what is forwarded to her by the
mailroom supervisor without checking or verifying such data. She
has access to both the checks and remittance advices.
RISK: Data which have been forwarded to her may already be
misstated or incomplete upon receipt if she does not verify such.
Also, even if the data forwarded was complete and correct, she has
access to both the assets and records. This would make it very easy
for her to commit fraud by stealing the check and destroying the
evidence (remittance advice) leaving no trail of the cash receipt.

ACCOUNTS RECEIVABLE
CONTROL: Verification process for forwarded data before recording
such. Assuming that the data forwarded to her was complete and
correct, the remittance list should be prepared by the mailroom
supervisor instead of the accounts receivable clerk. This would
serve as control for the checks and remittance advice making it
easier to determine discrepancies arising from stolen or lost checks
and what should have been deposited in the bank.

ACCOUNTS RECEIVABLE
WEAKNESS: The AR clerk is responsible for both the AR Subsidiary
Ledger and the Cash Receipts Journal. This means that she both
records the cash and updates the customer accounts from her
computer terminal.
RISK: It would be easy for the AR clerk to conceal cash shortage or
practice what is otherwise known as LAPPING. Lapping consists of
misappropriating collections from one customer and concealing this
defalcation by applying a subsequent collection from another (Valix,
2013).

ACCOUNTS RECEIVABLE
CONTROL: Segregation of duties the person responsible for
recording cash receipts should be different from the one who
records and updates the receivables account.

TREASURY
The members of the group believe that the treasury department is
functioning appropriately. The practice of preparing three deposit slips
is in accordance with what is required by Section 465 of COA Circular
No. 91-368.
(http://sc.judiciary.gov.ph/jurisprudence/2008/december2008/171812.ht
m)

SUBMITTED BY:
Bondoc, Jessa Krizzel D.
Chancoco, Maria Jasmine Rhei A.
Gonzales, John Kenneth M.
Lauricio, Helena Marie Q.
Manalese, Aarone Jan T.
Group 5 (A-531)