RISKS AND INTERNAL CONTROLSFollowing describes the credit sales procedures for clothing wholesalerthat sells name-brand clothing to department stores and boutique dressshops. The company sells to both one-time and recurring customers. Aflowchart of the system is provided in the figure labeled Problem 5:Internal Control.Customer orders are received by fax and e-mail in the sales department.The sales clerk, who works on commission, approves the credit sale,calculates commissions and discounts, and records the sale in the salesjournal from the PC in the sales department. The clerk then prepares asales order, a customer invoice, and a packing slip, which are sent to theaccounting department for processing. The accounting clerk updatesthe AR subsidiary ledger and sends an invoice to the customer. The clerkthen forwards the sales order and packing slip to the warehouse-shipping department. The warehouse-shipping clerk picks the itemsfrom inventory and sends them and the packing slip to the carrier forshipment to the customer. Finally, the clerk updates the inventorysubsidiary ledger and files the sales order in the department. Cash receipts from customers go to the mail room, which has onesupervisor overseeing 32 employees performing similar tasks: a clerkopens the envelope containing the customer check and remittanceadvice, inspects the check for completeness, reconciles it with theremittance advice, and sends the remittance advice and check to theaccounting department.The accounting department clerk reviews the remittance advice and thechecks, updates the AR subsidiary ledger, and records the cash receipt inthe cash receipts journal. At the end of the day, the clerk updates the ARcontrol, cash, and sales accounts in the general ledger to reflect the day'ssales and cash receipts.Requireda. Describe the uncontrolled risks associated with this system as itis currently designed.b. For each risk, describe the specific internal control weakness(s)in the system that causes or contributes to the risk
RISKS AND INTERNAL CONTROLS
Following describes the credit sales procedures for clothing wholesaler
that sells name-brand clothing to department stores and boutique dress
shops. The company sells to both one-time and recurring customers. A
flowchart of the system is provided in the figure labeled Problem 5:
Internal Control.
Customer orders are received by fax and e-mail in the sales department.
The sales clerk, who works on commission, approves the credit sale,
calculates commissions and discounts, and records the sale in the sales
journal from the PC in the sales department. The clerk then prepares a
sales order, a customer invoice, and a packing slip, which are sent to the
accounting department for processing. The accounting clerk updates
the
then forwards the sales order and packing slip to the warehouse-
shipping department. The warehouse-shipping clerk picks the items
from inventory and sends them and the packing slip to the carrier for
shipment to the customer. Finally, the clerk updates the inventory
subsidiary ledger and files the sales order in the department.
Cash receipts from customers go to the mail room, which has one
supervisor overseeing 32 employees performing similar tasks: a clerk
opens the envelope containing the customer check and remittance
advice, inspects the check for completeness, reconciles it with the
remittance advice, and sends the remittance advice and check to the
accounting department.
The accounting department clerk reviews the remittance advice and the
checks, updates the AR subsidiary ledger, and records the cash receipt in
the cash receipts journal. At the end of the day, the clerk updates the AR
control, cash, and sales accounts in the general ledger to reflect the day's
sales and cash receipts.
Required
a. Describe the uncontrolled risks associated with this system as it
is currently designed.
b. For each risk, describe the specific internal control weakness(s)
in the system that causes or contributes to the risk
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