Internal Audit and Budget Department

AUDIT PROGRAM
Audit Area: Cash Receipts
Received cash, checks, remittance lists and
remittance advice
I. Risk

F-1: Cash receipts may be lost and/or misappropriated.

II. Control/Control Procedure

 Separate the cash receipt function from the related record keeping function.

III. Audit Objective

To determine whether controls over checks arriving in the mail are adequate.

IV. Audit Procedure

1. Verify that all bank account openings and closings have been approved by the treasurer
of the organization.
2. Ensure that incoming cash is handled by the least possible number of employees while
maintaining segregation of duties. Check that cash receipts are promptly deposited intact
and not commingled with other cash items or petty cash funds.
 Internal Audit and Budget Department

AUDIT PROGRAM
Audit Area: Cash Receipts
Store checks and cash in a lock box or safe
I. Risk

F-3: Inadequate physical access controls over cash.

II. Control/Control Procedure

 Restricted areas, money safes, controls over night collections (PC).

III. Audit Objective

To determine whether access to cash receipts is permitted only in accordance with

management’s authorization.

IV. Audit Procedure

1. Determine that employees handling cash funds are properly bonded. Based on the
volume of cash receipts, analyze the need for the use of a lockbox. Ensure that when
branch offices collect cash receipts, only the head/ home office – authorized personnel
deposit those collections in a bank account subject to withdrawal.
2. Select a representative sample of checks returned by the bank as uncollectible.
Ascertain that an individual not responsible for preparing the cash deposit has
investigated and taken appropriate action.
3. Only the cash handling clerk and one backup employee should have a key to the
lockbox or the combination to the safe. If either of these employees leaves the
company or is reassigned to another position, the company must change the lock or
safe combination.
 Internal Audit and Budget Department

AUDIT PROGRAM
Audit Area: Cash Receipts
Deposit cash or check in the bank
I. Risk

F-2: Lost, incorrectly recorded, and/or misappropriated cash receipts may not be identified
and corrected timely

II. Control/Control Procedure

 Prepare a verified deposit slip or the list of checks for verification of the accuracy or
completeness of cash receipts.

III. Audit Objective

To ensure that the cash/check are properly deposited in the bank.

IV. Audit Procedure

1. The cash receipt officer must stamp “for deposit only” and the company’s bank
account number on every check received; this makes it more difficult for someone
to extract a check and deposit it into some other bank account.
2. The cash processing clerk records all checks and cash on a deposit slip. They
must compare the total on the deposit slip to the amount stated on the mailroom
check receipts list, and reconcile any differences.
 Internal Audit and Budget Department

AUDIT PROGRAM
Audit Area: Cash Receipts
Bank Reconciliation
I. Risk

F-7: Potential for fraud or irregularities

II. Control/Control Procedure

 Segregation of duties between cash receipts and bank reconciliation: vouching for
payment; credit; opening incoming mail; and posting cash receipts to the general ledger
functions.

III. Audit Objective

To ensure that there is unintentional use of cash funds for personal expenses.

IV. Audit Procedure

1. Ensure that cash receipts are prelisted at the initial point of receipt by preprinted cash
receipt forms. Verify that cash receipts are posted to detail accounts receivable records
from collection advice, not the checks. Find out if an independent person promptly
compares the totals with entries in the cash receipt records. Requiring preparation of
a prelist of incoming cash receipts, with copies of the prelist going to the cashier and
to the accounting department, is an example of a preventive control.
2. Trace the amount received to the daily bank deposit. Note any differences.
3. Ensure that no payroll or personal checks are cashed from cash receipts.
4. Examine the account distribution of the cash receipt total and compare to the detail
receivables posting and the invoice as to amount and date entered. Ensure discount
and allowances taken are proper. Ensure that cash receipts regarding taxes are
accurately classified and reported to the tax authorities in a timely manner. In order to
determine whether customers took served cash discounts, compare cash receipt
journal entries with related remittance advices and sales invoices.
5. Obtain bank statements and verify that deposits are being made on a daily basis.
Investigate any unusual amounts.
 Internal Audit and Budget Department

AUDIT PROGRAM
Audit Area: Cash Receipts
Transmit remittance advice to the A/R Supervisor
I. Risk

F-1: Cash receipts may be lost and/or misappropriated.

F-4: Inefficient collection activities may occur due to inaccurate customer account balances.
F-5: The receivable balance and/or aging of receivables included in internal receivable
management reporting may not be accurate.
F-6 The financial records and financial statements may be misstated.

II. Control/Control Procedure

 Separate the cash receipt function from the related record keeping function.
 Update the cash and receivable balances in the subsidiary ledger and the related
customer accounts periodically.
 Approved credit vouchers signed by the supervisor.
 Changes and adjustments to be made in the account balances should be approved.

III. Audit Objective

To ascertain whether cash receipts are accurately summarized and reported in a

timely manner.

IV. Audit Procedure

1. Ensure that cash receipts are prelisted at the initial point of receipt by preprinted cash
receipt forms. Verify that cash receipts are posted to detail accounts receivable records
from collection advice, not the checks. Find out if an independent person promptly
compares the totals with entries in the cash receipt records. Requiring preparation of
a prelist of incoming cash receipts, with copies of the prelist going to the cashier and
to the accounting department, is an example of a preventive control.
2. Examine the account distribution of the cash receipt total and compare to the detail
receivables posting and the invoice as to amount and date entered. Ensure discount
 and allowances taken are proper. Ensure that cash receipts regarding taxes are
accurately classified and reported to the tax authorities in a timely manner. In order to
determine whether customers took served cash discounts, compare cash receipt
journal entries with related remittance advices and sales invoices.
3. The cash processing clerk or cash receipt officer should immediately record the
transaction into the cash receipt log and assign it an identification number. If the payer
is present in the office, the clerk should issue a signed receipt listing the date and
amount received. The transaction numbers must be unique and sequential so an
auditor can quickly see if a cash receipt is missing from the log. If an employee transfers
possession of a cash receipt to another employee, both parties must sign a receipt
stating the date and dollar amount of the transfer. After recording the remittance
advices received from the cashier, he will electronically transmits the remittance
information to the AR supervisor in order for them to update the subsidiary ledger.
 Order Entry

Credit Management
Billing
Accounts Receivable
 Collection

Cash Receipts
Cash receipt

Cash receipt is a written document that is produced by a company each time it receives
money for goods and services. The customer and the company both keep a copy of this
document. Moreover, a cash receipt is a proof of purchase issued when the buyer has paid in
cash. Cash is received from customers only when there are any sales. So, as a cashier try to
enter a transaction of receipt of cash from customers, they to use a sale transaction as a
reference.

Since cash is the most liquid of all assets, a business cannot survive and prosper if it does
not have adequate control over its cash. Cash is the asset that has the greatest chance of “going
missing” and this is why we must ensure that we have strong internal controls build around the
cash process. Since many business transactions involve cash, it is a vital factor in the operation
of a business. Of all the company’s assets, cash is the most easily mishandled either through
theft or carelessness.

Cash Receipt Process

The first phase in the cash receipt process is when the daily mail delivery arrives. The mail
room is usually in the collection department. The collection department endorsed the checks and
issues the remittance list and remittance advice to the cash receipt officer. The cashier or the
cash officer record all received checks and cash on the mailroom check receipts list. For each
check received, the cashier must state on the form the name of the paying party, the check
number, and the amount paid. If the receipt was in cash, then the cashier should state the name
of the paying party, check the “cash” box, and the amount paid. Once all line items have been
completed, the cashier should enter the grand total in the “total receipts” field at the bottom of the
form. Sign the form, and state the date on which the checks and cash were received. Also, they
must stamp “for deposit only” and the company’s bank account number on every check received;
this makes it more difficult for someone to extract a check and deposit it into some other bank
account.

Moreover, after the cashier received the cash and checks from the collection officer, he
will then match all the items to its remittance list. After that, he will provide a copy of the list, and
returns the copy by interoffice mail to the mailroom. The mailroom staff then files the initialed copy
by date.
 The cash processing clerk or cash receipt officer should immediately record the
transaction into the cash receipt log and assign it an identification number. If the payer is present
in the office, the clerk should issue a signed receipt listing the date and amount received. The
transaction numbers must be unique and sequential so an auditor can quickly see if a cash receipt
is missing from the log. If an employee transfers possession of a cash receipt to another
employee, both parties must sign a receipt stating the date and dollar amount of the transfer. After
recording the remittance advices received from the cashier, he will electronically transmits the
remittance information to the AR supervisor in order for them to update the subsidiary ledger.

The cash processing clerk records all checks and cash on a deposit slip. They must
compare the total on the deposit slip to the amount stated on the mailroom check receipts list,
and reconcile any differences. After that, they must store all cash in a safe or lockbox until it is
deposited in the bank. Only the cash handling clerk and one backup employee should have a key
to the lockbox or the combination to the safe. If either of these employees leaves the company or
is reassigned to another position, the company must change the lock or safe combination. The
risks that may arise in this phase is when the armored car where the cash or checks to be
deposited in the bank was robbed and when the check endorsed to the company has insufficient
funds. These risks, although they do not usually happen, may still be detrimental to the
organization if they do not have a specific way of mitigating it.

Reconciliation activities confirm that the cashier recorded transactions correctly. He must
perform monthly reconciliations of cash receipts and bank account statements to provide good
checks and balances. However, there is a risk that may arise in the bank reconciliation if the cash
receipt officer is also the one who is responsible for comparing the cash receipts log with the daily
bank deposits and the cash held in the lockbox or safe. Someone other than the cashier should
compare this receipt to the amount on the deposit slip, and reconcile any differences. At the end
of the month, he will print the general ledger reports for the company's cash account and compare
them to the monthly totals on the cash receipt log. Any discrepancies not due to deposits in transit
should be investigated and the reasons noted on the reconciliation report. Each reconciliation
must be signed and dated by the person who prepared it. It may also be useful to staple the
receipt to a copy of the deposit slip and file the documents, as proof that the matching step or
reconciliation was completed.

Lastly, the management needs to continually review cash handling processes to ensure
they are being followed, if they need to train staff because of their incompetence, and they must
investigate any unusual activity in the cash receipt process. The management must review cash
over/short account and investigate large or unusual amounts. Further, they must review cash
receipts ledger for unusual items or tampering and they should approve returns, refunds and void
transaction logs. System security access is very important in the organization, the management
must review this on a regular basis. Moreover, they must review overdue accounts on a monthly
basis.

Bibliography

Cash and Internal Control | Financial Accounting. (n.d.). Retrieved May 1, 2017, from
https://courses.lumenlearning.com/finaccounting/chapter/cash-receipts-and-
disbursements/
Cash Handling Internal Controls | Finance. (n.d.). Retrieved May 1, 2017, from
https://uwaterloo.ca/finance/guidance-procedures/procedures-info/cash-handling-
internal-controls
Cash receipt definition and meaning | Collins English Dictionary. (n.d.). In Collins Dictionary |
Definition, Thesaurus and Translations. Retrieved May 1, 2017, from
https://www.collinsdictionary.com/dictionary/english/cash-receipt
Cash Receipts Procedure - AccountingTools. (n.d.). Retrieved May 1, 2017, from
http://www.accountingtools.com/procedure-cash-receipts
Internal control guide cash collections. (n.d.). Retrieved May 1, 2017, from
http://www.auburn.edu/administration/oacp/CashCollectionICG.php
Internal Control Practices: Cash. (2017, February 3). Retrieved May 1, 2017, from
https://blink.ucsd.edu/finance/accountability/controls/practices/cash.html
Putra, L. D. (2008, June). Cash Receipt and Billing Weakness | Accounting, Financial, Tax.
Retrieved May 1, 2017, from http://accounting-financial-tax.com/2008/06/billing-and-
cash-receipt-weakness/
Sullivan, D. (n.d.). Internal Control Procedures for the Receipt of Cash | Chron.com.
Retrieved May 1, 2017, from http://work.chron.com/internal-control-procedures-receipt-
cash-6735.html