Suppose McCain Foods, the Canadian food products company, is opening a district office in Fredericton, New Brunswick. Wilson Gates, the office manager, is designing the internal control system for the office. Gates proposes the following procedures for credit checks on new customers, sales on account, cash collections, and write-offs of uncollectible receivables:
• The credit department will run a credit check on all customers who apply for credit.
• Sales on account are the responsibility of McCain's salespersons. Credit sales above $50,000 (which is a reasonable limit) require the approval of the sales manager.
• Cash receipts come into the credit department, which separates the cash received from the customer remittance slips. The credit department lists all cash receipts by the name of the customer and the amount of cash received. The cash goes to the treasurer for deposit in the bank. The remittance slips go to the accounting department for posting to individual customer accounts in the accounts receivable subsidiary ledger. Each day's listing of cash receipts goes to the controller for her end-of-day comparison with the daily deposit slip and the day's listing of the total dollar amount posted to customer accounts from the accounting department. The three amounts must agree.
• The credit department reviews customer accounts receivable monthly. Late-paying customers are notified that their accounts are past due. After 90 days, the credit department turns over past-due accounts to a lawyer or collection agency for collection. After 180 days, the credit department writes off a customer account as uncollectible. Identify the internal control weakness in this situation, and propose a way to strengthen the controls.