Question

5 Sales system deficiencies
RST Co supplies a wide range of garden and agricultural products to trade and domestic customers. The company has 11 divisions, with each division specialising in the sale of specific products, for example, seeds, garden furniture, agricultural fertilizers. The company has an internal audit department which provides audit reports to the audit committee on each division on a rotational basis.
Products in the seed division are offered for sale to domestic customers via an internet site. Customers review the product list on the internet and place orders for packets of seeds using specific product codes, along with their credit card details, onto RST Co's secure server. Order quantities are normally between one and three packets for each type of seed. Order details are transferred manually onto the company's internal inventory control and sales system, and a two part packing list is printed in the seed warehouse. Each order and packing list is given a random alphabetical code based on the name of the employee inputting the order, the date, and the products being ordered.
In the seed warehouse, the packages of seeds for each order are taken from specific bins and dispatched to the customer with one copy of the packing list. The second copy of the packing list is sent to the accounts department where the inventory and sales computer is updated to show that the order has been dispatched. The customer's credit card is then charged by the inventory control and sales computer. Bad debts in RST are currently 3% of total sales.
Finally, the computer system checks that for each charge made to a customer's credit card account, the order details are on file to prove that the charge was made correctly. The order file is marked as completed confirming that the order has been dispatched and payment obtained.
Required
(a) In respect of sales in the seeds division of RST Co, prepare a report to be sent to the audit committee of RST Co which:
Identifies and explains five deficiencies in that sales system
Explains the possible effect of each deficiency
Provides a recommendation to alleviate each deficiency
(Note. Up to 2 marks will be awarded for presentation.)
(b) Explain the advantages to RST Co of having an audit committee.
(Total = 20 marks)

Answer 1

a).

S. No.	Deficiencies	Possible Impact	Recommednation
1	Only Internet	No other order facility is being there in system for capturing order. Onl internet. Order from other ways are not accepted. Casue loss of possible opportunity from other medium.	Recommended to Add other ways to capture the orders. As it helps to increase the order.
2	1 / 3 Size packet availability Only	Only two packing facility is only in the sale system. As if the requirement is little lower then customer has to expend little bit higher which may lead to loss of customers as well as cost of packing will be higher, as only two packing facility is therein.	Recommended to provide packaging on the basis of weight rather than 1 / 3 packing variety.
3	Name of the Packing / order is wrong	Naming of order in Employee Name/ Order/ date/ product etc. Chances of duplicate order captured, it is difficult to identify the order peratins to which customer.	Recommended to capture the order with Order no. against customer name , date and product name also.
4	Only two copy of Packing list printed	One copy of lIst sent to customer along with order and another copy sent to accounts department for recording sale and change the inventory records. No further documentation is kept by warehouse manager for further reference.	Recommended to made 3 copies of the packing list. One for customer, another for warehouse keepr, one for account departments.
5	Credit Card Charge	Credit card charge should be made by inventory recorded. Chances of fraud are higher in this case, as chances of matching the credit card with other customer is higher, as they are mainating the credit card details regularly. It is advisable to charge by AR department and accordingly if any balance s left earlier those can be charged with the credit card with the sale.	Recommended to be updated by the AR department, as they are well aware about the credit worthiness of the customer.

b). Audit Committee within an organsiation helps to put the line of independency to Audit department. Because if Audit department report to Top managemet, chances of oversight of the efforts of IA dept is very high, as IA deals in regularise the flawness in the organisation whereas top management builds to hide the mistake therin.

Secondly Audit commitee helps to plan the Whole Audit programme as per the objective. Changes if any therin in the objective same is communicated appropriately. Any  changes in governance or area to be chnages or method , team requirement, reporting everything is controlled by Audit committee hence non interferance by the the organisation leads to indepence of the Audit personnels.