Auditing - 2
Report
Introduction: I was asked by the management of Cotton Company to perform an audit review on their current controls in sales and cash receipts and identify their strong controls in the existing system. Moreover, I was asked to provide a detail of the deficiencies in the internal controls and provide their recommendations.
Main Report:
Existing Controls in Sales and Cash Receipts:
Sales on store’s own billing:
The sales made in the Cotton Company are made on their own billing receipt instead of using the credit cards from the customers. Most of the sales of the Cotton Company is on credit terms, therefore, it is very important to maintain proper paper work and the receipts in the record books. This is a strong control to maintain the records of the clients.
Sales book of sales clerk:
Each sales clerk at the Cotton Company has his/her own sales book. This sales book has pre-numbered, three-copy and multi color sales receipts and the sales clerk is bound to submit the two copies to the cashier. This is a strong check to eliminate the fake or dummy sales. Moreover, the sales clerk must keep one copy of the receipt in his records to produce it if there is any emergency or audit engagement.
Role of Supervisor:
The supervisor at the Cotton Company is a trustworthy person who collects the cash from the cash sales. The sales clerk complete the sale and bring the cash to the supervisor with the three slips and the supervisor check these slips. After checking the slips, the supervisor authorizes the sale and the goods are delivered to the customer. This is a strong control to check the reliability of the orders. The supervisor also checks the description of the clothing and the tag prices to insure that there is no error in the pricing of the products.
Role of Cashier:
All the sales are recorded in the register of the store manager and the two copies of the receipt of sales made are delivered to the cashier. Therefore, to check the reliability of the register of store manager, the auditor of the internal auditor can compare the records of the cashier and the store manager. This control of the Cotton Company will insure that the store manager is not in a position to make fake sales to increase the profits of the company.
Deficiencies in the Internal Controls:
Deposit of Cash in Bank:
In the Cotton Company, the cash sales made in one day are collected by Diab and he calculates all the sales and verifies them. All the cash collected is left in the office premises. It is highly probable that someone can steal the cash from the premises of the office because Diab deposit the cash in bank next morning.
Mails to the credit customers:
The mails are not the proper and quick way to send the receipts of the credit sales. It is highly probable that the mails may not reach the customers. Moreover, it is the duty of the sales staff at the store to issue the credit receipt at the time of sales.
Collection of credit payments via mails:
The mails are opened by Diab’s secretary and all the correspondence is given to the Diab and the cash to the secretary. It is highly probable that the she may misplace the cash or mix the cash. This deficiency will cause problems for the secretary in identifying the exact amount of cash paid by the customers.
Uncollectable Items:
It is a deficiency that the receivable clerk is heavily depending on the recommendations of the Diab on the issue of bad debts. It is highly probable that the Diab can manipulate the sales of the company by showing fake sales to earn personal gains.
Customer Complaints:
All the complaints are resolved by Diab on the issue of the misstatements of the payments. It is the deficiency of the internal controls that the clients are given wrong receipts.
Reconciliation of Bank and other accounts:
The reconciliation of the Bank, general ledger and receivable accounts are performed by the receivable clerk. It is a deficiency of the internal control system because it is a form of self review of the work done by receivable clerk.
Inventory Control System:
Diab authorized the inventory count and approve any adjustment arises from the differences in the books of receivable clerk and inventory counts.
Recommendations:
Deposit of Cash in Bank:
It is recommended that if it is important to leave cash at the office, then the Diab or other management staff must put all the cash in the safe place. For example, all the cash must be transferred to the cash department or the accounts department and must be locked in the lockers.
Mails to the credit customers:
It is recommended that the receivable clerk must send the emails to the clients to collect payments quickly. Sending mails is a professional way of reminding the clients; however, the emails will reduce the credit days for the business.
Collection of credit payments via mails:
It is recommended that the mails must be opened at the office of the relevant officer. It is highly probable that the client paid half of the amount and the receipt is shows that the client paid in full. Then it will create problems for the secretary of the company. Moreover, the credit sales must be received in form of bank check to mitigate the risk of mishandling of the cash.
Uncollectable Items:
It is recommended that the receivable clerk must contact the clients who owe the remaining amount of credit sales. Moreover, it is not a good internal control to give the authority to one individual in the department.
Customer Complaints:
It is recommended that the sales clerk must deliver one copy of the sales receipt to the receivable clerk, so that he can update his accounts accordingly and timely. This improvement in the controls will reduce the customer complaints automatically.
Reconciliation of Bank and other accounts:
It is recommended that the reconciliation of bank, receivable accounts and general ledger must be performed by the internal control department or the internal audit committee because they are independent of making their opinions.
Inventory Control System:
The difference in the books and the count in the inventory must be reconciled by the third party such as internal auditor. Moreover, if there is no internal audit department, then the receipts of goods purchased or manufactured and the receipts of sales must be used to determine the exact amount of inventory.
Conclusion:
In the end of the report it is advised to the management of the Cotton Company to not give most of the controls to one individual at the work place. Moreover, they must have a computerized system for the sales. Cotton Company must have a proper internal audit department to double check the operations of sales, receivables and the inventory.
The Auditor
