SHW is a cleaning company. Customers’ apartments are cleaned monthly, the company then posts a stamped addressed envelope for payment through the customer’s front door. SHW has a large number of receivable balances and these customers pay by cheque or cash, which is received in the stamped addressed envelopes in the post.
The following procedures are applied to the cash received cycle:
1. A junior clerk from the accounts department opens the post and if any cheques or cash have been sent, he records the receipts in the cash received log and then places all the monies into the locked small cash box.
2. The contents of the cash box are counted each day and every few days these sums are banked by which ever member of the finance team is available.
3. The cashier records the details of the cash received log into the cash receipts day book and also updates the sales ledger.
4. Usually on a monthly basis the cashier performs a bank reconciliation, which he then files, if he misses a month then he catches this up in the following month’s reconciliation.
For the cash cycle of SHW:
i. Identify and explain THREE deficiencies in the system
ii. Suggest controls to address each of these deficiencies
iii. List tests of controls the auditor of SHW would perform to assess if the controls are operating effectively