You are the in-charge auditor examining the financial statement of the Gutzler Company for the year ended December 31. You are examining the controls surrounding the cash receipts processes and have noted the following.
All mail is opened in the mail department by a junior employee. Any cheques or cash received is sent directly to the accounts receivable clerk without any further processing by the mail department. The accounts receivable clerk prepares the cash receipts, keeps the cash receipts journal, prepares the bank deposit slip in duplicate, posts from the deposit slip to the subsidiary accounts receivable ledger, and mails the deposit to the bank.
The controller receives the validated deposit slips directly (unopened) from the bank. She also receives the monthly bank statement directly (unopened) from the bank and promptly reconciles it. Any reconciling items such as interest received, service charges or direct deposits are recorded directly into the general ledger by the controller immediately after she completes the reconciliation. The reconciliation is then filed.
1) Identify and explain three weaknesses in the cash receipts system. Explain the possible effect of each weakness identified and provide a recommendation to alleviate each weakness.