Question

Describe the weaknesses, threats, and controls of revenue cycle, payrol cycle, conversion cycle n expenditure cycle in proper detail?

Answer 1

A recurring business activities and information processing operations includes the process of delivering goods and services to customers and receiving payments for the sales called as revenue cycle. Revenue cycle helps to access the right product at right price at right place when the customer needs. Revenue cycle process involves Sales Order, Credit/Customer Service and Shipping, Billing/Account receivable, Cash receipts and Collections. Weakness and threats of revenue cycle are lack of employees in warehouse, theft of cash, theft of inventory, failure to bill customers, Incomplete and inaccurate customer orders, Credit sales to customers with poor credit, carrying costs and markdowns. Control measures can be taken to overcome the weakness and threats of revenue cycle. An independent credit approval function and maintaining good customer accounting can help to prevent problems on Sales to customers with poor credit, barcode scanners; and data entry application controls will help to catch Shipping error, Separating shipping and billing and pre-numbering of shipping documents helps along with reconciliation of all sales documents can help in Failure to bill customer’s error.
The length of time between payrolls is called as a payroll cycle. A payroll cycle can be on weekly or on monthly. Weakness of a payroll cycle are Hiring of unqualified or larcenous employees, Violation of employment law unauthorized changes to the master payroll file, Inaccurate time data, Inaccurate processing of payroll, Theft or fraudulent distribution of paychecks, unauthorized payments; incorrect salary payments, falsified sales or hours, falsified wages etc. Controls taken to protect the payroll cycle involve dividing payroll tasks among departments and employees that someone has less ability to commit fraud, limit access to payroll record, create a separate bank account dedicated to payroll, get record audited etc.
The conversion cycle expresses the time it takes for a company to convert its investments in inventory and other resources into cash flows from sales. It transforms input resources ex- raw materials, labor, and overhead, into finished products or services for sale. Weakness and threat are lack of perfect quality production, lack of waste minimization, flexibility in production, lack of inventory etc. control measure can be taken by checking the quality of product and by taking collectives measures to maintain the quality, by checking the stock of inventory like raw material, by sending the finished good to the suppliers.
An expenditure cycle involves the process starts with purchasing order, ordering goods, services and inventory, provides invoices for these items and services. The weakness and threats of expenditure cycle are stock outs of order, purchasing unnecessary inventory, purchasing inventory at inflated prices and inferior quality, purchasing from unauthorized vendors, by finding the errors in recording, purchase orders and payments. Control measures taken for expenditure cycle are inventory control system, performance analysis of vendor, restricted access to blank purchase requisitions, budgetary controls, use of approved vendor lists, approval of purchase orders etc.