Tutorial_11

1. Tutorial_11

2. AQ 11.1 Problem 10.3 Parts (a) to (j) (Romney page 404) • What internal control procedure(s) would provide protection against the following threats? If more than one control procedure could be used to solve a problem, rank the alternatives in terms of their effectiveness: • a. Theft of goods by the shipping dock workers, who claim that the inventory shortages reflect errors in the inventory records.

3. AQ 11.1 • a. Shipping personnel should be required to document (on paper or by computer) receipt of goods from the finished goods storeroom. This procedure acknowledges responsibility for custody of the goods transferred.

4. AQ 11.1 • b. Posting the sales amount to the wrong customer account because a customer account number was incorrectly keyed into the system.

5. AQ 11.1 • b. Closed loop verification could be used , such as compare and check the customer account number with the customer name.

6. AQ 11.1 • c. Making a credit sale to a customer who is already 4 months behind in making payments on his account.

7. AQ 11.1 • c. Up-to-date credit records should be maintained, and credit checks should be made prior to approval of sales orders.

8. AQ 11.1 • d. Authorizing a credit memo for a sales return when the goods were never actually returned.

9. AQ 11.1 • d. A receiving report should be required to support the authorization of credits for sales returns.

10. AQ 11.1 • e. Writing off a customer’s accounts receivable balance as uncollectible to conceal the theft of subsequent collections.

11. AQ 11.1 • e. Separate the function of authorizingwrite-offs of uncollectible accounts from the function of handling of collections on account, in order to prevent any single individual from perpetrating this type of fraud.

12. AQ 11.1 • f. Billing customers for the quantity ordered when the quantity shipped was actually less due to back ordering of some items.

13. AQ 11.1 • f. Shipping personnel should be required to record the actual quantity shipped on the order document and/or enter the quantity shipped into the sales order processing system, in order that bills can be prepared based upon the quantity shipped rather than the quantity ordered.

14. AQ 11.1 • g. Theft of checks by the mailroom clerk, who then endorsed the checks for deposit into the clerk’s personal bank account.

15. AQ 11.1 • g. Supervision of mailroom operations, limitation of authority to endorse checks to the cashier only, and instructions to the bank to accept only those checks endorsed for deposit in the company's account.

16. AQ 11.1 • h. Theft of funds by the cashier, who cashed several checks and did not record their receipt.

17. AQ 11.1 • h. Cash receipts should be listed and totaled in the mailroom before the cashier receives the checks. A third person compares the amount deposited as shown by a validated deposit slip to the batch total prepared in the mailroom.

18. AQ 11.1 • i. Theft of cash by a waiter who destroyed the customer sales ticket for customers who paid cash.

19. AQ 11.1 • i. All sales tickets should be prenumbered and accounted for. This would quickly spot a missing ticket.

20. AQ 11.1 • j. Shipping goods to a customer but then failing to bill that customer.

21. AQ 11.1 • J. Segregate shipping and billing functions. Documentation (i.e. bill of lading or pack slip) containing information on amount shipped should be forwarded to billing function (A.R). Reconciliation of billing and shipping data.

22. AQ 11.2 • The following is a brief description of a portion of a revenue cycle business system. • The marketing department consists of four sales representatives. Upon receiving an order over the phone, a sales person manually prepares a pre-numbered, two part sales order. One copy of the order is filed by date and the second copy is sent to the shipping department. All sales are on credit. Because of the recent increase in sales, the sales representatives have not had time to check credit histories. The marketing department also deals with all customer enquiries about the progress of their orders.

23. AQ 11.2 • Required: • Identify three significant weaknesses from the system description given above. Identify the threats or problems the weakness may lead too and then suggest a control to correct the weakness you identified. Use the table given below to format your answer.

24. AQ 11.2 ① • The marketing department consists of four sales representatives. Upon receiving an order over the phone, a sales person manually prepares a pre-numbered, two part sales order. One copy of the order is filed by date and the second copy is sent to the shipping department. All sales are on credit. Because of the recent increase in sales, the sales representatives have not had time to check credit histories. The marketing department also deals with all customer enquiries about the progress of their orders. ④ ② ③

25. 1.Orders received over the telephone are not confirmed by customers in writing. Require a written customer purchase order as confirmation of telephone orders. This could result in errors or in filling bogus orders. Customers’ credit should be checked and no sales should be made to those that do not meet credit standards. . This could result in excessive late collections and uncollectibleaccounts. 2.Customer credit histories are not checked before approving orders. This could lead to difficultyin handling customer questions and complaints. Ultimately resulting in lost sales and damage to business reputation. . Establish customer files and file sales orders by customer name or number. . 3.Sales orders are filed by date in the Marketing Department. .

26. AQ 11.3Problem 10.12 (Romney p 408) • Match threats in the first column to appropriate control procedures in the second column.

27. Threat Control Procedure 1. Sending incorrect merchandise a. Perform a completeness check 2. Crediting customer payment to b. Credit sales approved by credit wrong account manager 3. Giving goods away for free c. Reconcile sales orders to 4. Corrupted data files packing slips 5. Data entry errors by warehouse d. Use a sales forecasting system employees e. Use bar-code scanners 6. Theft of customer payments f. Document inventory transfers 7. Charging the wrong price g. Segregate shipping and billing 8. Inventory shrinkage due to theft functions by employees h. Maintain an updated inventory 9. Missing or incomplete order data master file 10. Inept operations i. Closed-loop verification 11. Sales made to customers with j. Employ a bank lockbox poor credit k. Off-site data storage of backup 12. Excess inventory files l. Prepare and review ---------- ----------------------------------------------------------performance reports 9 11 1 5 12 5 1 8 3 7 2 6 4 10