A lockbox is essentially a separate mailbox to which deposits are sent by customers. The company’s bank opens all mail arriving at the lockbox, de­posits all checks at once, copies the checks, and forwards all check copies and anything else contained in customer remittances to the company. The bank may also scan the checks and post them online for immediate view­ing by the company. This approach has the advantage of accelerating the flow of cash into a company’s bank account, since the lockbox system typ­ically reduces the mail float customers enjoy by at least a day while also eliminating all of the transaction-processing time that a company would also need during its internal cash-processing steps.

The number of controls needed in a lockbox environment is consider­ably reduced, since there is no cash on the corporate premises. The reduced set of controls is shown in Exhibit 1. In this revised system, the cashier ac­cesses check images over the Internet or obtains this information from the remittances advices forwarded to the company by the bank. In either case, the cashier logs the receipts into the cash receipts journal, while the receiv­ables clerk verifies that all receipts were correctly logged in to the computer system.

The controls noted in the flowchart are described at greater length next, in sequence from the top of the flowchart to the bottom.

Exhibit 1 System of Controls for Lockbox Receipts

• Receivables clerk reconciles remittance advices to cash receipts journal. On a daily basis, the receivables clerk prints the cash receipts journal for the date associated with remittance advices and check copies forwarded by the bank, and matches them to a printout of the cash receipts journal. This control ensures that all cash receipts are entered in the computer and that receipts are charged to the correct customer accounts.
• Accounting manager reconciles daily online bank statement to general ledger. With online access to bank records, the accounting manager can conduct a daily review of the online bank statement, incrementally rec­onciling the bank account in the computer system. This control is an ex­cellent detective method for quickly spotting any unusual transactions flowing through the cash account. A daily reconciliation is also useful for immediately recording any electronic payments and charging them to the correct customer account in a timely manner. This task should be per­formed by the accounting manager rather than anyone directly involved in the cash recording process.

Though not noted in the primary transaction flow for lockbox transac­tions, the next additional procedure is also useful for ensuring that all cash receipts are processed through the lockbox.

• Mailroom staff sends all checks received by the company to the lockbox address. Even with proper notification of all customers regarding a lockbox address, some will still send their payments to the company in­stead. In order to retain a simplified cash-handling system, it is best to have the mailroom staff immediately mail these payments to the lock-box address as soon as they are received.

A comparison of the controls required under a lockbox system to a basic cash receipts system makes it obvious that control systems can be greatly simplified if all cash is routed through a lockbox. However, customers are not always so accommodating in sending their payments to a lockbox- there are always a few who persist in sending payments straight to the com­pany. Consequently, unless arrangements are made with the mailroom staff to mail these additional payments promptly to the lockbox address, it will be necessary to retain the traditional cash-handling controls.

[tags]lockbox receipts, controls lockbox[/tags]

Tags: controls lockbox, lockbox receipts