Inner Artist is a retailer of arts and craft supplies in the suburban Chicago area. It operates a single retail store and also has extensive catalog sales on account to area schools, churches, and other community organizations. Retail customers pay for supplies with cash, check, or credit card at the time of the sale. Occasionally, a credit customer may come into the store and purchase supplies on account. In such cases, the sales clerk is required to have the sale approved by the manager. The manager will authorize the sale if he or she recognizes the customer. The sales clerk must complete a charge slip for each sale on account.

At the end of each shift, the sales clerk prepares a summary of cash collections. This report is forwarded to the accounting department. The charge slips are forwarded to the accounts receivable department at this time.

The supervisor in the accounts receivable department verifies the information on the charge slip. Prices are matched with an approved price list. If errors are found, they are manually noted on the charge slip. A sales invoice is then prepared by the accounts receivable supervisor. The accounts receivable clerk mails the invoice to the customer.
The accounts receivable supervisor enters invoices in the computer system each afternoon. At this point, the accounts receivable subsidiary ledger is created and details of the sale are forwarded to the accounting department. At month’s end, the accounts receivable supervisor prints a monthly report of the accounts receivable subsidiary ledger and list of past‐due accounts. These reports are filed and referred to in cases of customer complaints or payment problems.
A cashier supervises the sales clerks and performs the basic cash collection functions. The cashier opens the mail each day and stamps the check “For Deposit Only,” with the company’s endorsement and bank account number. Checks are compared with any supporting remittance advice received with the check, and a daily listing of mail collections is prepared. Two daily deposits are prepared: one for the mail collections and another for cash register collections. A duplicate copy of all deposit slips is maintained by the cashier for use in the preparation of the monthly bank reconciliation.

In the accounting department, a staff accountant receives documentation of cash collections from sales clerks and the cashier. The staff accountant uses the information to prepare the journal entry for posting to the general ledger. When all of the collections have been entered, the remittance information is transmitted electronically to the accounts receivable supervisor for purposes of updating the accounts receivable subsidiary ledger for the day’s collections.

Monthly account statements are prepared by the staff accountant and mailed to all customers. If a customer’s account remains unpaid for six months, the staff accountant will notify the accounts receivable supervisor to write off the account as uncollectible. At this time, the credit manager is also notified of the account status so that additional credit will not be granted to this customer.

Required:
From the facts of this scenario, describe the internal control risks associated with Inner Artist’s internal controls over the revenues and cash collection processes. Prepare a business memo, addressed to Amanda Michelson, the company’s owner/operator, describing your recommendations for correcting each of these problems.