Question

Question 1

"The managing partner at your firm said that you are the expert when it comes to situations like this. Come walk with me."

You are in the general manager's office at a manufacturer. This manufacturer makes and sells lefthanded widgets.

The general manager leads you out of the office so that you can see what goes on in the operation. There is a pegboard wall on which is hanging a group of clipboards which contain sales orders--one sales order per clipboard. These sales orders are on lined (but otherwise blank) paper. A group of people sit around waiting for the phone to ring. When it does, one of them picks up the phone and takes the order down on the next page of a plain pad of paper. He takes down the bill-to address, the ship-to address, the date when the customer wants delivery, and the items and quantities ordered. Then he walks over to the 57

pegboard wall which contains the clipboards, finds an empty clipboard if he can, and puts the page (or pages if it is a long order) there for one of the order pickers to take down.

"This system works pretty well for us. Once or twice a week, though, we miss an order. When somebody opens the shipping department door over there (at this instant, he points to the door he is talking about), it sometimes creates a breeze that blows away some of the papers which are not securely held by the clipboard. Somebody said we ought to make a copy instead of having just the original, but this system seems to work well for us, so why waste the money with a second copy?"

You then see one of the order pickers come to the pegboard wall, look around at the various clipboards, and select whatever sales order he wants. To do this, he takes down the clipboard which contains the order he wants to pick, and leaves in its place the empty clipboard from the last order he picked.

"John, you don't mind if this auditor watches you while you pick the order, do you?" John doesn't mind, so the general manager leaves to go elsewhere. John pushes something which reminds you of a big laundry cart like you see in movies about prison. He goes up and down the aisles, pulling items off the shelves and putting them into the laundry cart. Occasionally he realizes he has forgotten something, so he returns to an aisle and gets something down to put into the cart. You never see him check anything off as he pulls the item, and once or twice you think he has already put that item into the cart, but he just tells you that he knows his job and no, he has not already pulled that item.

When he finishes pulling the order, he takes the order to a packing and staging area. He packs the order into cartons, stacks the cartons on a pallet, and then takes a shipping document from a stack to fill out. He fills out the two-copy shipping document, separates the two copies, tapes the second copy to one of the cartons on the pallet, and gives the original to the dispatcher. The dispatcher arranges for a truck to come pick up the order and take it to the customer.

John, the order picker, then takes his clipboard with the sales order up front, places the sales order on a pile, and gets another order to be picked from the pegboard wall with the clipboards containing the sales orders. 58

You walk back to the dispatcher's office. After talking with him, you learn that once the order has been shipped, the dispatcher is supposed to take the shipping documents up front to put into the same pile as the sales orders which have been picked.

As you are walking back to that place where the completed sales orders and the shipping documents are supposed to be piled, somebody opens that door you were told about earlier, and the pile of papers gets blown about. Some of the papers from the clipboards get blown loose, too. A couple of people come rushing over, pick up the loose papers strewn about, and put some of them onto empty clipboards hanging on the pegboard wall. How do they know which ones to put on the clipboards? They don't know and they don't care. If they don't ship to a customer, they figure the customer will call back. If they ship duplicate times to a customer but bill him only once, then the customer is not likely to complain because, what the heck, the customer got what he ordered, didn't he?

You go to the billing department. It turns out that someone in the billing department goes downstairs and brings back whatever sales orders and shipping documents were in the pile to be billed. The department does not bill customers unless there is both a sales order and a shipping document, indicating that the order was picked, packed, and shipped. The department has quite a pile of sales orders without any matching shipping documents, but has not billed those sales orders because there is no indication they were shipped.

You go wandering around for a while, observing whatever else strikes your eye, before the general manager spots you and takes you back to his office. You tell him that you have not yet talked with the credit manager, so he takes you to the credit manager's office. The credit manager is there playing video games on his computer and keeps playing them for a number of minutes until he finally wins a game. Then he greets you. It turns out that he does not do anything with any of the sales orders unless somebody asks him to--maybe once or twice a week, once the order has been picked, someone will bring him a copy of the sales order. (Note: Although the credit manager calls it a copy, you know that it is actually the original. There are not any other copies.) Then he will go into the computer files to find out whether the customer owes money, and if so, how much, and whether there is any old balance or not. Then he calls up the customer and says we are 59

shipping the order, but that we want to be paid. Orders always get shipped; that's a personal rule he has. The credit manager tells you that once he has called the customer, he files that copy of the sales order in the customer's file. He is very proud of the fact that every order he calls about has been paid. How does he know that? Why, not even one of those orders has ever shown up on the accounts receivable overdue listing. (He is not referring to the accounts receivable aging, because he never sees that. He is referring to a listing of just the overdue accounts.)

Required:

You may use a two-column approach to answer parts a and b.

a. What internal control weaknesses do you see in this system?

b. What are the potential effects of these weaknesses?

Suggested (not required) format for answer:

Internal control weaknesses Potential effects of weaknesses

Answer 1

Answer:

A) Internal control weaknesses are:

In the present arrangement of account arranges the control shortcoming are high likelihood of missing an order.sales arrange getting lost, not getting transported or twofold shipping.After a request is put there ought to be a legitimate system for chronicle the request and all the request receipts must be asked to the to take a hike and organizing territory after appropriate checking by the request prier.

There ought to be discrete filling of transportation archives and deals arrange. At that point all the transportation reports and deals request should achieve the charging office. A business request ought to be entered in the client document simply after installments has been made.

Request following is relatively outlandish in the current circumstance.

B) Potential effects of theses weaknesses are:

1.Losses to the organization due to non installment by client.

2.Loss of clients to rivalry if there should arise an occurrence of non receipt of products.

3.Loss of notoriety on the off chance that products are deliverable twice.

4.Nobody can be help responsible for his/her work in the association.

5.Improper record keeping along these lines estimation of benefit/misfortune, awful charges ends up troublesome.