Pacific Used Books sells all of its products by "mail order." Customers can select their purchases from an online catalogue. Once the books are selected, the customer sends an order in by e-mail, then prints out the e-mail and mails it in with a cheque. For individual customers, Pacific does not send out the order until the payment is received. For corporate customers like bookstores, Pacific will send out the order with an invoice before payment is received. Occasionally, "walk in" customers will come in to purchase specific books. These customers are expected to pay cash, and the receptionist prepares the invoices and takes the cash for the cash transactions.
The following procedures relate to the handling of cash payments from customers:
1. Pacific's mail clerk opens all of the mail, which usually takes him the entire day. Orders from customers are placed in one file folder and the cheques received are placed in another file folder.
2. The cheques are delivered to the Accounts Receivable department at the end of the day, and placed in a filing cabinet by Joanie, the Accounts Receivable clerk. The file folder of orders is given to the shipping department.
3. The following morning Joanie prepares a bank deposit with all of the cheques received the previous day, and gives it to the receptionist to hold in her desk drawer.
4. At the end of the day, the receptionist adds any cash received from "walk in customers" to the deposit and then takes the deposit to the bank on her way to the bus stop.
5. From a photocopy of the bank deposit slip, Joanie prepares a list for the shipping department indicating which customer's orders have been paid so that they know which orders are cleared for shipping. If the list includes payments from corporate customers, the shipping department ignores this information, assuming the orders have been sent previously.
6. Working from a photocopy of the bank deposit slip, Joanie enters the customer payments in the accounts receivable subledger, and records the cash received in the cash receipts journal.
7. At the end of the month, Joanie adds up all of the bank deposit slips, and reconciles this amount to the total cash receipts (per the cash receipts journal) for the month. There is very seldom a difference between the two amounts.
Instructions
a. For each procedure, explain one weakness in internal control.
b. For each procedure, identify the control activity that is violated.
c. For each weakness, recommend an improvement that will increase internal control over cash receipts.

An Example of Physical and IT Controls Would NOT Include

Multiple Choice

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