You are conducting the interim audit of the Lancastrian branch of CB Wholesalers Ltd, fashionwear wholesalers. The branch is the largest single outlet of the company and has substantial annual sales which are invoiced by the branch. Three methods are used to collect cash at the branch:

• sales direct to customers who collect the goods from the branch and pay cash immediately for the goods;

• cash collected on delivery of goods to customers; and

• cash received through the post from credit customers.

The branch has two invoice sets which are used for cash sales and credit sales respectively.
When payment is received for cash sales by the cashier, one copy of the invoice is stamped as paid and filed alphabetically, while the other is given to the customer. Petty cash is reimbursed on a weekly basis out of cash sales.
For credit sales, the invoice is sent to the customer, and 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, who passes any remittances to the credit controller for his review, without recording the amounts received. The credit controller gives the remittances to the cashier by depositing them in a tray on the cashier’s desk. The cashier then makes a listing of the remittances which is used by the credit controller for posting to the sales ledger.
The cheques from credit customers and cash sales receipts are banked daily by the cashier. The credit controller posts remittances to the sales ledger by means of a microcomputer accounting system and verifies the cash discount allowable.
The credit controller obtains approval from the head office of CB Wholesalers Ltd to write off bad debts, and any remittances received in respect of these amounts are credited to ‘sundry income’ if they are received after the debts have been written off.

The head office has asked you to review the system of control over cash collection and remittances as it suspects that irregularities are taking place.

Required

(a) Describe the potential irregularities that could occur under the present system of accounting for cash collection and remittances through the post.

(b) Suggest improvements in the system of internal control which could prevent any potential irregularities in the collection of cash and remittances.

(c) Describe the audit tests which you would carry out to assess whether any irregularities had taken place. Give reasons for using these tests.