You are the senior accounting manager of the Causeway Bay branch of Rita Leung Wholesalers Limited. It is a reputable toys wholesaler. The branch is the largest single outlet of the company and has substantial annual sales turnover that are invoiced by the branch. Cash is collected at the branch by one of three methods: (1) sales direct to customers who collect the goods from the branch and pay cash for the goods immediately, (2) cash collected on delivery of goods to customers, (3) cash received through the post from credit customers.

1. There are two sets of invoice at the branch which are used for cash sales, and credit sales respectively. When the cashier receives the payment for cash sales, a copy of the invoice is stamped as paid and will be filed in alphabetical order by him whilst the other copy of the invoice is given to the customer. Reimbursement of petty cash is made on a weekly basis out of cash sales.

2. Regarding credit sales, customer will receive the invoice when payment is received. The copy invoice is stamped as paid and filed alphabetically with the cash sale invoices. Mail is opened by the secretary to the credit controller and she passes any cash remittances to the credit controller for his detail review, without recording the amounts received. The credit controller passes the cash remittances to the cashier by depositing them in a tray only in the cashiers desk. The cashier will then prepare a list of the cash remittances that is used by the credit controller for the purpose of posting to the sales ledger.
3. Both the cheques from credit customers and cash sales receipts will be banked by the cashier on a daily basis. Posting of the cash remittances to the sales ledger will be done by the credit controller with the aid of a microcomputer accounting system, and then verifies the cash discount allowable.
4. Approval should be obtained by the credit controller from the head office of Rita Leung Wholesalers Limited to write off bad debts and any cash remittances received regarding these amounts are credited to miscellaneous income if they are received after the bad debts have been written off.

As a senior accounting manager, the head office has requested you to review the system of control over cash collection and remittances as it suspects that fraud and irregularities are taking place.

Required:

1. Describe the potential fraud and irregularities which could occur under the existing accounting system for cash collection and remittances through the post. (10 marks)

2. Give suggestions to improve the system of internal control which could prevent any potential fraud and irregularities in the collection of cash and remittances. (10 marks)