Question

Identifying eight (8) significant control weaknesses in the process described below. Also, please include the associated risk (i.e. What could go wrong?) of each control weakness.

Business Process Description:

Their processes rely mostly on manual processes and supported by some individual personal computers (PCs) running various applications. The sales process is described in the following narrative. All sales are made on credit whereby the cash receipt occurs later (not included in this exercise)

Ole’s revenue process starts when a salesperson receives an order from a customer via email or fax. The salesperson then enters the customer order into a computer-based sales application. At the end of the day, the computer generates 3 copies of the sales order form, a stock release form, a shipping notice and a packing slip. The accounts receivable (AR) department receives a copy of the sales order, the warehouse receives the stock release and a copy of the sales order, and the shipping department receives a shipping notice and packing slip. The salesperson then files a copy of the sales order in the sales department file cabinet by sales order number.

Immediately upon receipt of the sales order, the AR department staff manually prepares and sends an invoice to the customer. The staff then uses the information from the sales order to enter the sale into the sales journal and the AR subsidiary ledger (both on a PC based accounting software package). At the end of the day, the AR staff updates the general ledger (same software package) for all the sales transactions that occurred that day. Although not discussed in this narrative, the same software is used by the AR staff to handle cash collections.

Once the warehouse clerk receives the sales order and the stock release, they pick the products from the warehouse shelves and sends the goods to the shipping department with the stock release form. The warehouse clerk then updates the inventory subledger records on the warehouse PC and files the sales order in the warehouse filing cabinet by date. On a weekly basis and at financial close, the warehouse clerk notifies the accounting department of shipments using a manually prepared inventory account summary document.

The shipping department personnel receive the shipping notice and packing slip from the sales department. Once they receive the stock release and goods from the warehouse, the shipping person manually prepares a bill of lading document. The bill of lading, packing slip and goods are then sent to FedEx for delivery to the customer. The stock release form and shipping notice are then filed in the shipping department file drawer by date.

The accounting department staff then updates the general ledger software using the inventory summary document and files the summary document in the department file cabinet by date.

NOTE: For purposes of this narrative, assume that all data security, processing integrity and data backup controls are in place.

General Process Comments:

You can assume that all computerized systems have appropriate system access and data backup controls. Additionally, you can assume that the company has appropriate processing integrity controls.

Answer 1

SIGNIFICANT WEAKNESS -

1- AR staff update general ledger without discuss in narration ,so difficult to find out transaction in future.

2- NO SEGREGATION OF DUTY- Sales bill issue and cash collection both work done by AR staff ,so chances of misutilisation of power and theft of cash.

3-MANUAL WORK - In manual work chances of mistake very high .after that difficult to find the mistakes.

4- NO CHANGES OF JOB- Time to Time it is required to change the job of one person to another or give leave to employee because of find of error is easy if people is not available.

5-Shiping of goods and bill of lading both are done by same person they can misuse and change of quantity of good .