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Suggest information technology (IT) control procedure for each internal control weakness identified

The following activities describe revenue and cash receipt systems of Kiara Outdoor Berhad.

Kiara Outdoor Berhad is a Sintok based wholesaler of rafting and camping equipment that serves outdoor sports camping retailers throughout the northern area of peninsular Malaysia. You have been hired by Kiara Outdoor Berhad to evaluate their processes, risks and internal controls. Below is the revenue cycle procedures of Kiara Outdoor Berhad.

Sales Order Procedures

Customer orders are mailed or emailed to the sales department. The sales clerk checks the customer’s creditworthiness from a computer terminal by running a validation application. The credit check program determines if the customer’s account is up to date regarding payments and the customer has not exceeded his or her credit limit. Computer controls in the application prevent further processing of any transactions that fails the credit check. The credit manager may override the validation control.

The clerk then records the sales order through his/her computer terminal after the customer’s credit is verified. A digital copy of the order is distributed to the warehouse and shipping  department for  further  processing. The sales clerk records the sales in the sales journal. Finally, the clerk files the hard copy of the customer order in the sales department.

The warehouse manager is prompted by receipt of the digital sales order on the warehouse terminal. The manager prints out two copies of order, the stock release and a shipping notice. A warehouse clerk uses the stock release to pick the selected items from the shelves and sends them to the shipping department along with stock release and the shipping notice. The warehouse manager then updates the inventory subsidiary ledger and the general ledger control account from his/her computer terminal.

The shipping clerk will match the goods, stock release and shipping notice to the corresponding digital sales order displayed on his terminal. The shipping clerk will print out three copies of the bill of lading and a packing slip if goods and all documents are match. Two copies of bill of lading and the packing slip are sent along with the goods to the transporter. The stock release copy and shipping notice are sent to the accounts receivable (AR) department. The third bill of lading copy is filed in the shipping department.

Upon receipt of the stock release and shipping notice, the AR clerk manually creates a hard copy invoice which is immediately mailed to the customer. The clerk then uses information on the stock release to update the AR subsidiary ledger and general ledger (GL) from his computer terminal. The clerk files the stock release and shipping notice in the AR department.

Cash Receipt Procedures

Customer payments come directly to the general mail room along with other mail items. The mail clerk sorts the mail, opens the customer payment envelope, removes the customer’s cheque and remittance advice (RA) and reconciles the two documents. The clerk manually prepares two hard copies of remittance list to control the cheques and RA. One copy will be sent to the AR department along with the corresponding RAs. The other copy of remittance list accompanies the cheques to the cash receipts department.

Once the cheques and remittance list arrive in the cash receipt department, the accounts clerk reconciles the documents, endorses the cheques and manually prepares three hard    copies of deposit slip. The clerk then updates the cash receipts journal and the GL from his computer terminal. Then he sends the cheques and two copies of deposit slip to the bank.

Finally, he files the third copy of the deposit slip and the remittance in the department.

The AR clerk reconciles the remittance list and RAs then updates the AR subsidiary ledger and GL. Finally, the remittance list and RAs are filed in the department.

 

REQUIRED:

(a)         Identify FIVE (5) internal control weaknesses of revenue systems at Kiara Outdoor Berhad.

(5 Marks)

(b)        Identify ONE (1) risk involves for EACH internal control weaknesses identified in (a).

(5 Marks)

(c)         Suggest ONE (1) physical control procedure for EACH internal control weakness identified in (a).

(5 Marks)

(d)        Suggest ONE (1) information technology (IT) control procedure for EACH internal control weakness identified in (a).

(5 Marks)

Use the following format to answer question (a), (b) and (c).

Weaknesses

Risk

Physical Control Procedures

IT Control Procedures

Solution:

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