Craiglockhart Council Auditing
(a) Identify the control weaknesses that exist in the present cash collection system, describing the potential irregularities, which could occur as a result.
The case study details a considerable number of potential flaws and control weaknesses, which exist in the present system. These fundamentally relate to a lack of check and balance in terms of cash receipt, which potentially exposes the cash collection system to considerable risk (Millichamp and Taylor, 2008). These control weaknesses are detailed below along with the resulting potential for irregularities in the system.
Failure to file cash invoices in numeric or date order makes it easy to “misfile” them and they could potentially be lost leading to bad debt write off.
Failure to use a carbon copy process, if the invoices are raised manually, also exposes the council to risk of error because there is no guarantee the copy is an exact duplicate.
Failure to provide a receipt on immediate collection of cash can expose the council to fraud on the part of either the recipient or the employee collecting the cash. The recipient or the employee could write out an incorrect invoice and pocket the difference.
Lack of separation between petty cash and cash sales leaves the petty cash system open to abuse through the creation of fraudulent invoices for services, which have not actually been performed (see above).
Credit invoices are subject to the same issues of misfiling as cash invoices – these should be stored numerically. This also makes it easier to chase outstanding debt and reduce the cash collection cycle.
Failure by the secretary to record the remittances at the point of opening which means that if one was lost in transit there would be no record.
Leaving the remittances in an insecure place, like the cashier’s in-tray, with no supporting record could lead to them being lost or stolen with no record.
Multiple handling of the remittances between the department accountant and the cashiers potentially
The case study details a considerable number of potential flaws and control weaknesses, which exist in the present system. These fundamentally relate to a lack of check and balance in terms of cash receipt, which potentially exposes the cash collection system to considerable risk (Millichamp and Taylor, 2008). These control weaknesses are detailed below along with the resulting potential for irregularities in the system.
Failure to file cash invoices in numeric or date order makes it easy to “misfile” them and they could potentially be lost leading to bad debt write off.
Failure to use a carbon copy process, if the invoices are raised manually, also exposes the council to risk of error because there is no guarantee the copy is an exact duplicate.
Failure to provide a receipt on immediate collection of cash can expose the council to fraud on the part of either the recipient or the employee collecting the cash. The recipient or the employee could write out an incorrect invoice and pocket the difference.
Lack of separation between petty cash and cash sales leaves the petty cash system open to abuse through the creation of fraudulent invoices for services, which have not actually been performed (see above).
Credit invoices are subject to the same issues of misfiling as cash invoices – these should be stored numerically. This also makes it easier to chase outstanding debt and reduce the cash collection cycle.
Failure by the secretary to record the remittances at the point of opening which means that if one was lost in transit there would be no record.
Leaving the remittances in an insecure place, like the cashier’s in-tray, with no supporting record could lead to them being lost or stolen with no record.
Multiple handling of the remittances between the department accountant and the cashiers potentially
References: Gray, I and Mason, S (2008), The Audit Process: Principles, Practice and Cases, (4th ed.), London: Thomson Learning Ch 1 Millichamp & Taylor (2008) Auditing Thomson Learning; 9th Revised edition Ch 4 and Ch 13 - 15 Whittington, R and Pany, K (2009) Principles of Auditing and Other Assurance Services, London: McGraw-Hill Ch 6