Identifying Potential Frauds and Recommending Procedures to Improve Control You are auditing the Alaska branch of Far Distributing Co., a branch that has substantial annual sales, all of which are billed and collected locally. During your preliminary review of internal controls, you discover the following procedures for handling cash receipts:

Cash collections on over-the-counter and COD sales are received by the cashier from the customer or from the delivery service. Upon receiving cash, the cashier stamps the sales ticket "paid" and files a copy. The only record of COD sales is a copy of the sales ticket, which is given to the cashier to hold until cash is received from the delivery service.

Mail is opened by the credit manager's secretary, and remittances are given to the credit manager for review. The credit manager then places the remittances in a tray on the cashier's desk. At the time of the daily deposit—called "deposit cutoff time"—the cashier delivers the checks and currency to the assistant credit manager, who prepares remittance lists and the bank deposit, and carries the deposit to the bank. The assistant credit manager also posts remittances to customer accounts receivable files and verifies allowable cash discounts.

You also learn that the credit manager obtains approval to write off uncollectible accounts from the executive office of Far Distributing Co., located in Chicago, and that as of the end of the fiscal year some remittances that were received on various days during the last month are retained in the credit manager's custody.

Required:

1. Describe the frauds that might occur under the procedures now in effect for handling cash collections and remittances.
2. What procedures would you recommend to improve control over cash collections and remittances?