📌INTERGRATED CASH RECEIPTS SYSTEM
📢  MAIL ROOM

📢 Cash Receipts Department

📌 AUTOMATIC DATA PROCESSING PROCEDURES
When the cash receipts data entry is complete:

📌 CONTROLLER'S OFFICE
Clerks in the controller's office periodically performs a reconciliation of remittance lists bank deposits slips, cash receipts journals and the GL cash accounts.

primary risks associated with revenue cycle transactions:

* Selling to un-creditworthy customers

Selling on credit to customers who have not been properly vetted can lead to excessive bad debt
losses

Physical Controls
TRANSACTION AUTHORIZATION
to ensure that only valid transactions are processed.
SEGREGATION OF DUTIES
-to separate transaction authorization from transaction processing
-To provide independence to the credit authorization process

IT Controls
AUTOMATED CREDIT CHECKING
Credit checking is performed automatically by the
the system as a programmed process control

* Shipping customers the wrong items or incorrect quantities
result in damaged customer relations. excessive sales returns, lost future sales, and accounting errors

Physical Controls
INDEPENDENT VERIFICATION
verifies that the goods sent from the
warehouse are correct in type and quantity

IT Controls
SCANNER TECHNOLOGY
the system will verify that the items selected match those on the sales order

AUTOMATED INVENTORY ORDERING
When an inventory record is updated to reflect sales, the computer logic should check to determine if the reduction in inventory drops the inventory quantity-on-hand to a point below the inventory reorder point.

* Inaccurately recording sales and cash receipts transactions in journals and accounts
some common revenue cycle errors
~ Sees for Customers are incorrectly calculated
~Sales are recorded in the wrong period.
~customers are billed for items they did not receive (back-ordered),
~ Customer cash receipts are inaccurately posted to accounts or are posted to the wrong customer
accounts.
~Summaries of sales, accounts receivable, cash receipts, and inventory levels are incorrectly posted to their respective GL accounts.

Physical Controls
TRANSACTION AUTHORIZATION
 provides a means for verifying that customer checks and remittance advice match in amount and represent valid transactions.

ACCOUNTING RECORDS
allows independent auditors to trace transactions through various stages
of processing

PRENUMBERED DOCUMENTS
is a sequentially numbered by the printer and allow every transaction to
be identified uniquely.

SPECIAL JOURNALS
the system provides a concise record of an entire class of events by grouping similar transactions together into special journals


SUBSIDIARY LEDGERS
the inventory and  AR subsidiary ledgers
The sale of products reduces
quantities-on-hand in the inventory subsidiary records and increases the customers’ balances in the AR subsidiary records. Then, the receipt of cash reduces customers’ balances in the AR subsidiary records. Lastly, it will provide links back to journal entries and to the source documents that captured the events

GENERAL LEDGERS
-the basis for financial statement
preparation
Revenue cycle transactions affect the following GL accounts: sales, inventory, cost of
goods sold, AR, and cash

FILES
the RC employs several temporary and permanent files that contribute to the
audit trail
~ Customer order file shows the status of customer orders
~The shipping log specifies orders shipped during the period
~Customer records file provides customer credit data
~Back-order file contains customer orders for out-of-stock items
~Journal voucher file is a compilation of all journal vouchers posted to the general ledger


INDEPENDENT VERIFICATION
to verify the accuracy and completeness of tasks performed by other functions in the process

Independent verification controls in the RC exist in:
~The shipping department reconciles the goods being shipped against the packing slip to ensure that the customer is receiving the correct items and quantities
~the billing function reconciles the original sales order with the shipping notice to ensure that customers are billed for only quantities shipped and that sales are recorded in the sales journal only after the goods have been shipped and in the correct period
~ Prior to posting to control accounts, the general ledger function reconciles vouchers and summary reports prepared independently in different functional areas. The billing function
summarizes the sales journal, inventory control summarizes changes in the inventory, the cash receipts function summarizes the cash receipts journal, and accounts receivable summarizes the AR subsidiary ledger.

IT Controls
DATA INPUT EDITS
 the basic assumption in transaction processing system design is that master
files, such as inventory, accounts receivable, and the general ledger, are “clean” and error-free.

1. Cheeks for missing data, numeric-alphabetic data, and valid data values would reduce the risk of undetected data entry errors by clerks in the accounts receivable, inventory control, billing,
and cash receipts departments.

2. Check digit edits provide control over accessing the wrong accounts when posting customer sales and cash receipts transactions. Long customer account numbers are susceptible to transcription and transposition errors during data entry. Check digit controls reduce such errors in both basic and advanced technology systems.

AUTOMATED POSTING TO SUBSIDIARY AND GL ACCOUNTS
the system was performed manually by accounting automated in the advanced technology system.

FILE BACKUP
To reduce the risk of data loss

* Misappropriation of cash receipts and inventory
cash from customer payments is at risk of being “skimmed” before it is recorded or “embezzled after it has been received and recorded.

Physical Controls
TRANSACTION AUTHORIZATION
provides control against
theft of checks and remittance advice as they flow through the system

SUPERVISION
need supervision because:
~the mailroom is a risk
~to achieve adequate separation of functions

ACCESS CONTROLS
to help prevent
and detect unauthorized access to the firm’s assets by :
* Warehouse security, such as fences, alarms, and guards
* Depositing cash daily in the bank.
*Using a safe or night deposit box for cash
*Locking cash drawers and safes in the cash receipts department

SEGREGATION OF DUTIES
 ensures that no single individual or department processes a transaction in its entirety

1.The cash receipts function, which has custody of the cash asset, should be separated from the accounts receivable function that records the payment in the customer records. An individual
with responsibility for both tasks could perpetrate a lapping fraud or possibly steal the customer’s check and write off the AR as a bad debt.
2.The individual performing the cash receipts function should not have access to the general ledger cash account. He or she could remove cash from the firm and adjust the cash account to cover the act.
3.Inventory warehouse personnel who have physical custody of inventory assets should not also
be responsible for the accounting task of updating the inventory records. Combining these tasks would open the door to fraud and material errors. A person with combined responsibility could steal or lose inventory and adjust the inventory records to conceal the event.

IT Controls
MULTILEVEL SECURITY
 computer processes and data are highly concentrated and accessible through a common central application

* Unauthorized access to accounting records and confidential reports
motives:
~attempts to perpetrate a fraud such as creating a false sales order and wiping out an accounts receivable balance
~theft of data such as stealing a customer list for a competitor and downloading customer credit card numbers and PINs to be sold over the Internet
~Malicious acts such as corrupting and deleting financial data

Physical Controls
ACCESS CONTROLS
all hard-copy accounting records should be kept in secure areas and access to them should be restricted on a need-to-know basis

SEGREGATION OF DUTIES
certain record-keeping tasks needs to be separated specifically the subsidiary ledgers (AR and subsidiary), the journal (sales and cash receipt)

IT Controls
PASSWORDS
Digital accounting records are vulnerable to unauthorized and undetected access

MULTILEVEL SECURITY
employs programmed techniques that permit simultaneous access to central system by many users with different access privilege but prevent
them from obtaining information for which they lack authorization

 

END-OF-DAY PROCEDURES
1)At the end of the day, the cash receipts clerk prepares a three-part deposit slip for the total amount of the cash received. One copy is filed and the other two accompany the cash to the bank.
2)Finally, a batch program summarizes the sales and cash receipts journals, prepares a journal voucher and posts to the GL accounts.

POINT-OF-SALE CONTROL ISSUES
-Authorization: This process involves validating credit card charges and establishing that the customer is the valid user of the card.

-Supervision: The POS environment places both inventory and cash at risk because customers have direct access to inventory and cash can be removed from the cash drawer by dishonest employee. Supervision using surveillance cameras and shop floor security personnel can reduce these risks. 

-Access Control: The organization must restrict access to cash assets because POS systems involve cash transactions. This can be accomplished with a physical lock and key or password control. 

-Accounting Records: The internal cash register’s tape is an important accounting document because this tape records all sales transactions processed at the register. Only the clerk’s supervisor should have access to the tape to balance the cash drawer at the end of the shift.

-Independent Verification: The cash drawer should contain cash and credit card vouchers equal to the amount recorded on the tape.

 Doing Business on the Internet
-Thousands of organizations worldwide have home pages on the Internet to promote their products and solicit sales. 
-Typically, Internet sales are credit card transactions that are sent to the seller’s e-mail file.
-To expedite processing, some organizations employ intelligent agents (software programs) that review and validate Internet orders automatically as they are received.
-Example include B2B and business-to-consumer (B2C)
-Connecting to the internet exposes the organization to threats from computer hackers, viruses and transaction fraud.
-Most organizations take these threats seriously and implement controls, including password techniques, message encryption, and firewalls to minimize their risk.