Collection and Cash Receipt Controls (#12)

In this episode, we discuss the controls associated with collections, cash receipts, and petty cash. The main concept is to avoid cash-related controls by keeping cash off the premises, usually by encouraging the use of ACH payments or payments into a bank lockbox. Key points made in the podcast are:

Collection controls:

  • The collections staff is not allowed to handle cash receipts, since this presents a temptation to steal the cash and use credit memos to cover up the theft

  • The collections staff can only create credit memos without approvals that are relatively small; all others require management approval

  • Management approval is required to assign invoices to a collection agency, because of the significant collection fees charged

Cash receipts controls:

  • Two people open the mail, to reduce cash and check pilferage

  • The mailroom staff creates a list of all cash and checks received, of which it retains a copy

  • The mailroom staff endorses all received checks as being for deposit only

  • The cash receipts clerk matches all checks entered into the accounting system to the list provided by the mailroom, to look for anomalies

  • Compare the bank deposit slip to the cash receipts journal, to see if the courier removed any cash or checks

  • Force the cash receipts clerk to take vacations, which may uncover instances of lapping fraud

  • The cash register clerk gives a receipt to every paying customer, so the customer can compare the receipt to the amount paid

Petty cash controls:

  • Don’t use petty cash at all

  • Assign responsibility for the petty cash box

  • Document all disbursements from the petty cash box

  • Audit the petty cash box

  • Place a contact switch under the petty cash box, so that an alarm will sound if the box is taken

Related Courses

Accounting Controls Guidebook
Accounting Information Systems
Credit and Collection Guidebook
Optimal Accounting for Cash