Final answer:
A bank lockbox system, prenumbered remittance advices, and monthly bank reconciliations are effective controls to reduce the risk of diversion of customer receipts by an entity's employees.
Step-by-step explanation:
The control most likely to reduce the risk of diversion of customer receipts by an entity's employees is a bank lockbox system. A bank lockbox system allows customers to send payments directly to a separate bank-controlled post office box. This reduces the opportunity for employees to access and divert the funds.
Prenumbered remittance advices can also be effective in reducing the risk of diversion. By using prenumbered remittance advices, the entity can track and reconcile the receipts received with the corresponding advices, making it more difficult for employees to manipulate the records without detection.
Monthly bank reconciliations are an important control but may not directly reduce the risk of diversion of customer receipts. They help identify and resolve discrepancies between the entity's records and the bank's records, ensuring the accuracy of the financial information.