Salen, Carl Dhaniel G.

AIS

2A8

4. System Documentation, Risk Analysis, and Internal Controls

A. Flowchart

B. Risks

- Lack of supervision

- Cash misuse in the mailroom

- Inadequate capability of maintaining the accounts receivable record

- Cash theft in the accounts receivable department

C. Controls

- Separate general mails from customer checks and remittance advices

- Unless required, do not give customer checks and remittance advices to the accounts receivable
department

- Employ strict supervision of the 35 clerks who receive and sort the general mail.

5. Risks and Internal Controls

A. Uncontrolled Risks

- Sales to a fraudulent customer may occur

- Inaccurate recording of sales in the sales journal

- Possibility of delivering the wrong product to customers

- Inventory list misinterpretation

B. Internal Control Weaknesses

- There can be a risk of sales to fraudulent customers due to the sales clerk’s mistake in checking
customer credits

- Delivering the products before recording leads to inaccurate recording of sales

- Ineffective supervision of cash accounting may lead to cash theft

- Delivery of wrong products due to incorrect checking of shipment list by the warehouse and shipping
department

6. Internal Control Evaluation

A. Physical Control Weaknesses

- No credit checks made by the credit department

- The accounting clerk prepare vouchers and posts it into a single general ledger account

- The shipping clerk gets the merchandise and distributes them to people who haven’t placed their
orders
- Loss of sales invoice after the provision

B. IT Controls

- Segregation of duties

- Computerize the credit check process

- Pre-number all documents

- Reconcile accounts receivable control account with the accounts receivable subsidiary ledger

7. Stewardship

A. Customer Open Order File – Sales Department

B. Sales Journal – Billing Department

C. Journal Voucher File – Billing Department

D. Cash Receipts Journal – Cash Receipts Department

E. Inventory Subsidiary Ledger – Inventory Control Department

F. Accounts Receivable Subsidiary Ledger – Accounts Receivable Department

G. Sales History File – Sales Department

H. Shipping Report File – Shipping Department

I. Credit Memo File – Credit Department

J. Sales Order File – Sales Department

K. Closed Sales Order File – Sales Department