Kenya Stanley February 12, 2013 ACC 564 CH 12 HMWK Problems 12.2 and 12.

12.2

What internal control procedure(s) would provide protection against the following threats?

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. b. Either a redundant data check or closed loop verification could be used. If the transactions are being entered in batches, redundant data such as the first five characters of the customers name could be included in each input record; after finding a match on customer account number, the system would also verify that the name characters match before posting the transaction. If the transactions are being entered online, the system could respond to operator entry of the account number by retrieving and displaying the customers name for the operator to review. c. Up to date credit records should be required to support the authorization of credits for sales return. d. A receiving report should be required to support the authorization of credits for sales returns. e. Separate the function of authorizing write offs of uncollectible accounts from the function of handling of collections on account, in order to prevent any single individual from perpetration this type of fraud. 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. 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 companys account. 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. i. All sales tickets should be pre-numbered and accounted for. This would quickly spot a missing ticket. j. Segregate shipping and billing functions.

k. Implement accurate inventory control and sales forecasting systems including periodic physical inventory counts and frequent review and revision of sales forecasts. l. A system of user IDs and passwords is the first line of defense followed by allowing read only access to customer data for sales staff, implement access controls over individual terminals, and maintaining activity logs. m. Regular backups with copies being stored off-site. n. Backup generators as well as cold and/or warm site contracted backup facilities. o. Encrypting sensitive data prior to transmission, creating virtual private networks, and transmitting data over secure socket layer (SSL) networks. p. A system of user IDs and passwords is the first line of defense followed by allowing read only access to price lists for sales staff, implement access controls over individual terminals, and maintaining activity logs. q. A system of user IDs and passwords is the first line of defense followed by allowing read only access to customer data for sales staff, implement access controls over individual terminals, and maintain activity logs. In addition, formal non-compete agreement could be used when hiring personnel. r. A nightly backup with copies being stored off-site. Periodically testing backup data for access and compatibility with current company hardware and software. 12.7 Identify at least three weaknesses in OBrien Corporations revenue cycle activities. Describe the problem resulting from each weakness. Weaknesses and Potential Problems(s) Orders received over the telephone are not confirmed by customers in writing. This could result in errors or in filling bogus orders Customer credit histories are not checked before approving orders. This is resulting in excessive late collections and uncollectible accounts Items that are out of stock are merely noted. Inaction in these cases could cause lost sales There is no reconciliation of inventory amounts shipped with billings. This could result in undetected under-billing. The receiving department does not compare incoming deliveries to purchase orders. This may lead to the acceptance of unordered goods. A complete inventory listing is printed out only once a year. Errors in the perpetual inventory Recommedation(s) to Correct Weaknesses Require a written customer purchase order as confirmation of telephone orders Customers credit should be checked and no sales should be made to those that do not meet credit standards Establish procedures to schedule production for back orders and to ship and bill the product once it is available Billing and shipping records should be integrated on the computer system to provide for reconciliation of inventory amounts shipped and billed. Copies of purchase orders without quantity information should be sent to Receiving. Receiving should match the shipment to the purchase order and indicate the quantity received. Inventory listings should be printed periodically throughout the year, and physical counts

records may remain undetected for too long a time period. The Receiving Department and the Shipping Department share a computer terminal. In addition, the personnel in both departments have access to the physical inventory and can update the perpetual inventory records through the terminal. This could result in the theft of inventory with no means of tracing the theft.

compared to the listing on a cycle basis. Each department should have its own terminal and the terminals should ne for inquiry purposes only. The physical custody and recordkeeping of inventory should be separated (perpetual records should be updated on the computer by Purchasing/Accounts Payable and Billing) Access to the physical inventory should be limited to Receiving, it would add incoming goods to the physical inventory and select the goods from the warehouse for shipping Establish customer files and file sales orders by customers

Sales orders are filed by date in the Marketing Department. This leads to difficulty in handling customer questions and complaints.

Recommend control procedures that should be added to the system to correct the weakness. Maintain an online master file for customer account and credit data in addition to inventory data Use an online terminal to enter sales order data into the system as orders are received. Have the system check inventory availability as order data are entered; if the customer is on the phone at this time, inventory availability may be confirmed directly to the customer. Have the system perform a credit check as order data are entered, and reject orders from customers who are not credit-worthy Immediately following approval of a sales order, have the system (1) print or display a shipping order for Shipping Department use, (2) print a packing slop and mailing label for use in shipping the goods to the customer. Once the order has been shipped, the system should generate a customer invoice. Maintain order data online to facilitate response to customer inquires re order status Use password access controls to restrict access to the customer and inventory files, and the operations that can be performed on these files, to appropriate personnel