Segregation of duties controls dictates that the collection and recording functions be kept separate from each other. However, t
he accounts receivable department needs to know when customers pay their invoices. What is a solution to this potential internal control problem?A) Establish a lockbox arrangement with a bank.B) Have customers send a remittance advice with their payment.C) Have mailroom personnel prepare a remittance list which can be forwarded to accounts receivable.D) all of the above
The solution of the issue is software integration and making flow of information on timely basis across the company. The recommended solutions given in the question are correct because:
Establishing a lockbox arrangement is similar to having a single company bank account. This means that the company will have a confirmation from the bank that the payment is received by the bank from customers.
The remittance advice sent with payment helps to solve the misunderstanding, assist in recording transaction to keep the system updated and provides resistance to fraudulent practice.
The mailroom personnel who require mailing of trade receivable balance which the customers owe to company and trade payable balance which the company owes to suppliers. This avoids the company paying illegitimate amounts and receiving the amounts which the customers actually should pay to the company.
