The function of audit in respect of cash receipts being much the same as that in the case of cash payments, the procedure stated at the beginning of this Chapter should be applied for their verification. But the internal check in respect of cash receipts should be closer and stricter, primarily because these have to be verified generally only by reference to the internal evidence which, if it is not in existence or is manipulated, would not be of any assistance for the detection of incomes that either have not been credited or have been credited only partially. For example, if in respect of sale proceeds of goods or an item of miscellaneous income no bill or voucher has been prepared, audit would not disclose that the amount has been misappropriated. Similarly, if the amount on the copy of a cash memo has been cleverly altered from Rs. 50 to Rs. 5 and the latter amount only has been entered in the Cash Book, unless the alteration is detected and the fact that it has been altered is established, it would not be possible for the auditor to know that part of the cash sales has been misappropriated. On this account, it is essential that the auditor before starting the audit of cash receipts, should examine
the internal check in operation and bring to the attention of the management any weakness therein, as well as to the possible consequence that might follow if it is not removed. If he fails to do so, he may be held responsible at some later date for not having detected a defalcation or misappropriation in cash, the cause of which was the absence/inadequacy of the internal check.
Cash receipts are usually checked with counterfoils of the receipts issued. But the issue of receipts with counterfoils in respect of amounts collected by itself would not ensure that all the amounts collected have been fully accounted for or have been correctly adjusted. For instance, a receipt might be issued for a larger amount than entered on its counterfoils. Again, only one receipt might have been issued for
two or more amounts collected from a party while the counterfoils may show that separate receipts have been issued in respect of each amount collected and the one or more receipts forms, thus saved, may have been used for issuing a receipt of another amount collected which have been misappropriated.
Therefore, before accepting counterfoils or receipts as evidence or the correctness of the amount collected, the auditor should satisfy himself that there exists an efficient system of internal check which would prevent any receipt from being misappropriated. For the purpose, the auditor should make the following enquiries :
- Who opens letter, what record is kept, and whether all cheques and postal orders are immediately endorsed to bankers and crossed ‘Account Payee Only’ ?
- Whose duty is to enter cash, cheques and other forms of remittance in the Pay-in-Slip and who deposited it in the bank ?
- Are receipts banked daily ?
- Who prepares receipts and who countersigns the same before these are issued to the parties from whom the amounts have been received ?
- Whether printed receipts with counterfoils, numbered serially by a machine, are used and who maintains the stock of unused receipts ?
- Are the receipt books kept in safe custody and are they issued only when the current receipt book has been used up ?
- What internal check is being exercised over the collection of cash sales and miscellaneous income ?
- Are travelling salesmen allowed to collect any advance against orders booked and what control exists over such collections ?
- How often are the bank statements checked and compared with the Cash Book ?
- Who controls the preparation and despatch of monthly statements of account to customers ?
- Are ledgers posted by the cashier or some other person ?
There are certain firms which insist upon a receipt furnished to them on their own forms. In such a case, this fact should be noted on the counterfoil of the receipt which has been issued and the unused receipt form cancelled, as an additional precaution, balances in such customer’s should be get confirmed periodically. While vouching cash receipts, it should be seen that the date of each receipt as it is entered in the cash memo or the counterfoil of the receipt issued in respect thereof corresponds with the date on which it is entered in the Cash Book. If there is a time lag between them, it is possible that the person who had collected the amount had failed to deposit it with the cashier immediately thereafter. When such a discrepancy is observed, the cause thereof should be ascertained.