Practice Case for Sales/Collections Far Distributing Company

You are auditing the Alaska branch of Far Distributing Company. The branch has substantial annual sales, which are billed and collected locally. As a part of your audit, you find that the procedures for handling cash are as follows:

Cash collections on over-the-counter sales and COD sales are received from the customer or delivery service by the cashier. Upon receipt of cash, the cashier stamps the sales ticket “paid” and files a copy for future reference. The only record of COD sales is a copy of the sales ticket, which is given to the cashier to hold until the cash is received from the delivery service.

Mail is opened by the secretary to the credit manager and remittances are given to the credit manager for his review. The credit manager then places the remittances in a tray on the cashier’s desk. At the daily deposit cutoff time, the cashier delivers the checks and the cash on hand to the assistant credit manager, who prepares remittance lists and makes up the bank deposit, which she also takes to the bank. The assistant credit manager also posts remittances to the accounts receivable ledger and verifies the cash discount allowable.

You also ascertain that the credit manager obtains approval from the executive office at Far Distributing, located in Chicago, to write off uncollectible accounts, and that he has retained in his custody as of the end of the fiscal year some remittances that were received on various days during the last month.

REQUIRED

Give weaknesses in the procedures now in effect concerning cash collections and remittances. Include procedures you would recommend to strengthen internal control. (Include at least 10 weaknesses/recommendations in your answer.)