Question

Which of the following would offer the best protection for a company that wishes to prevent a reoccurrence of a previously detected "lapping" problem with trade accounts receivable?

A) Segregate duties so that the bookkeeper in charge of the general ledger has no access to incoming mail.
B) Segregate duties so that no employee has access to both checks from customers and currency from daily cash receipts.
C) Have customers send payments directly to the company's depository bank.
D) Request that customer's payment checks be made payable to the company and addressed to the treasurer.

Answer 1

The best option to prevent lapping is having customers send payments directly to the company's depository bank, as it minimizes the risk of employees manipulating incoming payments.

Step-by-step explanation:

In preventing the reoccurrence of a lapping problem with trade accounts receivable, the best protection would be to ensure that there is a proper segregation of duties and a secure handling of customer payments. The most effective option among those presented would be:

• C) Have customers send payments directly to the company's depository bank.

This method removes the opportunity for manipulation of receivables since employees do not handle the incoming payments directly. Instead, the bank processes the payments, reducing the risk of fraudulent activities such as lapping, where employees misappropriate funds and use subsequent payments to cover up the discrepancies. This approach, combined with other best practices such as protecting your mailbox, using strong passwords and PINs, and using anti-virus software on your computer, contributes to a secure financial environment for the company.