Cash Receipt Stream in Revenue Cycle

This document discusses the cash receipt stream in the revenue cycle and highlights the importance of bank reconciliation and segregation of duties. It explains the accounting process, control procedures, and management assertions. It also identifies the key controls in place and the missing controls. Additionally, the document explores the sales stream in the revenue cycle and suggests two changes to improve the process. In the second part, it discusses ideal risk control factors for small businesses and emphasizes the importance of segregation of duties in managing risk and internal control.

PART I
CASH RECEIPT STREAM IN REVENUE CYCLE
In the given case, following the cash stream overview flow, we can see that the as soon as the
receipt is deposited in the bank, an update is made in the ledgers. This has a moderate risk
because there is no reconciliation period between the deposit and the update on the ledger. The
check received and deposited may get dishonoured for any reason but the accounts has already
been updated. In such a scenario, the management will only get to know when there is an update
from the bank. This is a moderately risky affair.
a. The accounting process
The accounting process should have an intermediate step where there will a period of test check
when there can be a clarification whether or not the check got cleared. If the check is cleared it
can then be updated in the ledgers, on the other hand if the check gets dishonoured, the accounts
will be updated accordingly. Thus, there should be an intermediary process where the bank
verification would be carried out and a reconciliation statement where the party ledger, general
ledger and the cash ledger should be updated with a note on the update of the check.
b. The control procedure and management assertions covered by each control
In this entire case, there is no system of bank reconciliation. There should be a reconciliation
period which is very important because that will help Ownco minimize the risk of not getting
their payments honoured by the bank.
c. The key controls that are in place including # of key controls for each stream
The key control that are in place in the Cash Receipt Stream are making a list of all the checks
and remittances, getting deposit slips receipted from the bank, checking the receipts received
from the bank with the list made earlier and updating the transaction on the ledger accounts and
files. These key control are in place.
d. The missing key controls
One of the important key control is the intermediary period between matching the bank receipts
with the checks and updating the accounts of the computer system where the bank reconciliation
statement needs to be prepared. This key is missing that should be added to it. A reconciliation
statement is very important for the management to make no mistake of adding receipts on the
system while updating the ledger accounts that the bank cancelled.

e. Separation of duties
A separate individual should be placed for each of the important steps. In this case, the secretary
looks after the checks and the remittance. The book keeper updates the accounts on the
microcomputer. A new individual should be appointed to look after the reconciliation statement
throughout the intermediary period so that he has his own individual confirmation. Every duty
should be separated and cleared for every individual working in this process.
SALES STREAM IN REVENUE CYCLE
In the sales stream, there are two changes that needs to be made. The two changes or additions
are:
In the sales process, after the customer sale order has been placed and before the shipping of the
good, there should be a stock confirmation. Parallel to this stock confirmation, there should be a
confirmation call to the customer. The stock confirmation in the warehouse will confirm if the
required amount of stock is available for shipment. If the required sock is not ready then there
will be a scope to let the customer know about the period of time that might be required for the
shipment to take place. If the customer agrees with the delay in time, only then the shipment will
be done and the sale invoice will be will be updated in the accounts of the management. These
two processes is very important and should be included in the process.

PART II
IDEAL RISK CONTROL
Every business has some risk involved. A proper risk management approach can be effective for
controlling the risk and reduce or eliminate the threat. Ownco Inc. should being a small business
should follow simple steps that can help in minimizing the risk. The Ideal risk control factors for
small business are as follows:
a. Analysing the risk: By studying the history of the risks in the business and taking expert
opinion, the current risk can be easily identified and that will help to take protection
against it
b. Loss Control: Loss prevention is steps taken to lower the risk probability and loss
reduction means to reduce the severity of a big loss.
c. Segregation: dividing the work to reduce error and fraud.
d. Avoidance: this means to avoid anything that may involve risk or create risky situation by
either eliminating it or by applying a no-risk or less risk substitute.
SEGREGATION OF DUTIES
Segregation of duties is one of the most important and effective way to manage risk and internal
control. With Segregation of Duties one person will not be responsible for too many work in an
organisation. This means that not only the responsibility and the burden of work is shared but
also the risk factor within the organisation reduces. Segregation of Duties lowers the risk of
fraud, error and theft without which it will be unmanageable. Segregation of Duties ensure that
there is an oversight and a review that would help detect errors and prevent theft. It involves four
main separation functions:
 Authorization of transaction: This means that the role of authorization of transactions or
the buying and selling that take place in the organisation would be performed by one
person who will not be involved in the other duties or departments.
 Recording transaction: The duty to record all the transactions that have taken place,
preparing the source document for all the transactions, forming a performance report
would be divided into one category. One person will be appointed to perform this task.
 Custody of assets: The custody of all the assets whether direct or indirect would be
segregated and allotted to one person.

 Person performing control does not perform the process: As the name suggests, a person
who performs control tasks will not be involved in performing the process task.
Segregation of duty means each duty is divided so that one person will be responsible for
only one task.
Ownco Co. should as well have duties segregated. One person should not perform multiple task.
That can lead to error. Also if one person is responsible for many things he might tend to make
fraudulent acts. Segregation of duties will not only divide the pressure of too many task among
various people and lessen the pressure on one person, it will also keep a check on risk involved
with error, fraud, theft etc.

REFERENCES
Audit Risk Model | Inherent Risk, Control Risk & Detection Risk. (2019). Retrieved from
https://accounting-simplified.com/audit/risk-assessment/audit-risk.html
How to Assess Control Risk When Performing an Audit - dummies. (2019). Retrieved from
https://www.dummies.com/business/accounting/auditing/how-to-assess-control-risk-when-
performing-an-audit/