1.1 Data Flow Diagram of Sales Order Procedure Customer Customer Order Check Credit Credit Record SO4 Approved Sales Order Update AR Receive Order Bill of Lading & Packing Slip SO3 Sales Journal Invoice 2 SO2 Bill Customer Pick Goods Shipping Notice Stock Release File Invoice 1 AR Subsidiary Ledger Post to General Ledger General Ledger Records 1.2 Data Flow Diagram of Cash Receipts Procedure Customer Check & Remittance Advice AR Subsidiary Ledger Update AR Records Separate Document s Remittance Advice Update General Ledger Check Record and Deposit Check Check and Deposit Slip Cash Receipts Journal Bank 2.1 System Flowchart of Sales Order Procedure Sales Credit Customer Order Customer Enter Sales Order Billing A B SO2 SO3 Credit Check Shipping Notice Reconcile Credit Records Approved SO 1 File Reconcile SO 2 File Approved SO 2 Approved SO 3 B Bill of Lading Invoice 1 File Customer Customer Customer Packing Slip Invoice 2 Approved SO 4 A SO3 C 2.1 Continued Accounts Receivable C Invoice 2 Update AR Subsidiary Ledger File Terminal Update General Ledger 2.2 System Flowchart of Cash Receipts Procedure Mail Room Accounts Receivable Cash Receipts Remittance Advice Customer B Check Adjust AR Remittance Advice Update General Ledger Separate Documents Remittance Advice Remittance Advice Check File A Terminal Update Cash Receipts Journal Terminal Update General Ledger Deposit Slip Bank 3. Control Weaknesses: 3.1 Transaction Authorization The system of the credit policy of Premier Sports Memorabilia didn’t consider return policy. The company should have rules for granting cash refunds and credits to customers based on the materiality of the transactions. In addition, the company doesn’t have cash prelist to verify whether customer checks and remittance advices match in amount. 3.2 Segregation of Duties Tasks that would need to be segregated in manual systems are often consolidated within computer programs. In such situations, management and auditor concerns are focused on the integrity of the computer programs that perform these tasks. Furthermore, the programmer of the system should not be the one to use such systems. 3.3 Supervision It is difficult to supervise the system of the company since they lack records such as open order file for records of the dates when the customer orders have been received and approved, stock records to identify stock outs and others records relevant for proper supervision of the transaction controls. 3.4 Accounting Records The company lacks some records or lags which could possibly result in difficulty in tracing some transactions for verification. In addition, the posting to the general ledgers are systems generated transactions which should also be independently verified since the updates are only in total amounts. 3.5 Access Controls The system haven’t mentioned of proper authorization on access to different departments or users of the information. The system should have identification codes to access some information to secure information reliability. Without physical source documents for backup, the destruction of computer files can leave a firm with inadequate accounting records. To preserve the integrity of accounting records, Sarbanes-Oxley legislation requires organization management to implement controls that restrict unauthorized access. Also at risk are the computer programs that make programmed decisions, manipulate accounting records, and permit access to assets. 3.6 Independent Verification Some transaction lacks independent verification such as verifying the inventory counts to secure the orders of the customers. The company should check whether there are enough inventory counts in the warehouse before accepting the order or they should have their own controls to prevent stock outs. In addition, verification on the proper account to be updated on the cash receipts should also be checked so that proper receipts are deducted to the right customers to maintain integrity of the company. 4. Transaction Process The process starts on the receipt of a customer order indicating the kind and quantity of merchandise desired. The next process is to transcribe the customer order into a sales order. After creating the sales order, a copy of it is placed in the customer open order file for future reference. The record of the customer in the open order file is restructured every time the status of the order alters such as approval of the credit, on back-order, and shipment. On the other hand, the customer’s creditworthiness needs to be recognized before processing the order further. The receive order activity sends the stock release to the pick goods function, in the warehouse. This document classifies the stocks that must be located and picked from the warehouse shelves. It also serves as an authorization for warehouse clerks to release the specified items. After picking the stock, the order is verified for accuracy and the goods and verified stock release document are sent to the ship goods task. If inventory levels are deficient to fill the order, a warehouse clerk amends the verified stock release to reflect the amount that will actually go to the customer. Finally, the warehouse clerk adjusts the stock records to reflect the reduction in inventory. Before the arrival of the goods and the verified stock release document, the shipping department receives the packing slip and shipping notice from the receive order function. The packing slip will ultimately travel with the goods to the customer to describe the contents of the order. The shipping notice will later be forwarded to the billing function as evidence that the customer’s order was filled and shipped. Upon receiving the goods from the warehouse, the shipping clerk reconciles the physical items with the stock release, the packing slip, and the shipping notice to verify that the order is correct. The shipping clerk packages the goods, attaches the packing slip, completes the shipping notice, and prepares a bill of lading. Once the goods are transferred to the carrier, the shipping clerk records the shipment in the shipping log, forwards the shipping notice and the stock release to the bill-customer function as proof of shipment, and updates the customer’s open order file. The billing function awaits notification from shipping before it bills. Upon credit approval, the bill-customer function receives the sales order (invoice copy) from the receive order task. This document is placed in an S.O. pending file until receipt of the shipping notice, which describes the products that were actually shipped to the customer. Upon arrival, the items shipped are reconciled with those ordered and unit prices, taxes, and freight charges are added to the invoice copy of the sales order. The completed sales invoice is the customer’s bill, which formally depicts the charges to the customer. The inventory control function updates inventory subsidiary ledger accounts from information contained in the stock release document. Customer records in the accounts receivable (AR) subsidiary ledger are updated from information the sales order (ledger copy) provides. Periodically, the individual account balances are summarized in a report that is sent to the general ledger. The general ledger function has received journal vouchers from the billing and inventory control tasks and an account summary from the AR function. The AR summary figures should equal the total debits to AR reflected in the journal vouchers for the transaction period. By reconciling these figures, the general ledger function can detect many types of errors. We examine this point more fully in a later section dealing with revenue cycle controls.
