Jerome Paper Company engaged you to review its internal control system. Jerome does not prelist cash receipts before they are recorded and has other weaknesses in processing collections of trade receivables, the Company's largest asset. In discussing the matter with the controller, you find he is chiefly interested in economy when he assigns duties to the fifteen office personnel. He feels the main considerations are that the work should be done by people who are most familiar with it, capable of doing it, and available when it has to be done.

The controller says he has excellent control over trade receivables because receivables are pledged as security for a continually renewable bank loan and the bank sends out positive confirmation requests occasionally, based on a list of pledged receivables furnished by the Company each week. You learn that the bank's internal auditor is satisfied if he gets an acceptable response on 70 percent of his requests.

Required:

a. Explain how prelisting of cash receipts strengthens internal control over cash.

b. Assume that an employee handles cash receipts from trade customers before they are recorded. List the duties which that employee should not do to withhold from him the opportunity to conceal embezzlement of cash receipts.