Question

You have been recently employed as an

accountant for Bucks Phyz. The CEO has tasked

you with reviewing the sales processes of the

company and has provided you with key

information based on interviews with key staff

relating to the sales process (available in Interact).

The CEO is also considering the introduction of

corporate credit cards for the purchase of smaller

items for the business. At present, all purchases

require a purchase order to be raised and sent to a

supplier. This process was an issue when they

recently tried to book a training course for two

team members and the bookings needed to be

completed on line. The staff needed to book the

course themselves and seek reimbursement from

Bucks Phyz. The CEO would also like advice

regarding the impact of the introduction of

corporate credit cards and who should be issued

with a card.

Required :

1.In a tabular format give at least 5 internal control weakness in Buck Phyz, the impact of these weaknesses in the organization, and associated control to mitigate the weakness.

2. A detailed review of the benefits and potential risk with the introduction of the corporate credit card.

Answer 1

1.In a tabular format give at least 5 internal control weakness in Buck Phyz, the impact of these weaknesses in the organization, and associated control to mitigate the weakness.

S.No.	Internal Control weakness	Impact on the organization	Associated control to mitigate the weakness
1	Sales managers sending quotes on their own without proper authoriszation	The sales manager can send quotes to any customer without checking the credit worthiness and other terms of the contract. The control of Seggregation of the duties is absent in the current scenario	1) Only approved sales orders are sent to the customers after updating the check list of the credit worthiness, terms of contract and legal opinion etc.
2.	Standardized practice of signing the contract not being followed	Eventually, this can result in the fake/illegal contracts and fraud	The seggregation of the duties of the person submitting the contract for approval, the contract being sent for legal vetting and then being sent for the approval of the authorized perssonel should be clearly defined and implemented strictly.
3.	Standard contract template not upto date	This has resulted in the delay and issues with the contracts with the customers and also the situation of has potential impact on legal issues to the company	The standardized contract should be sent for legal vetting, and different standardized formats for different kinds of contracts are to be prepared
4.	New pricing tool not user friends and sales managers still using the old tool.	This would result in the under utilization of the available resources and skipping of the controls introduced in the new tool.	The old tool should be discarded and any calculation done manually without using the new tool should be approved by the finance head or any other competent authority. No contract or sales order should be released unless such approval is available
5.	Credit check of the new customers performed after the signing of the contract - Impact of seggregation of duties	This has resulted in the credit collection of the company resulting in bad debts	Need to check if proper seggregatin of the duties and demarkation is being implemented between sales and AR department. Need to check if the wife and husband relationship between sales head and AR head is facilitating the important check of credit worthiness being not followed on time. If possible a system control can be implemented that new customer cannot be created in the system, unless the credit report is attached and is approved by the AR head who is responsible for the credit worthiness check.
6.	Sales returns not considered in paying commission to sales personnel	Could result in fradulent activities of creating fake sales and getting the commission and later same being documented as sales returns	All the sales returns should have proper reasoning and are to be approved by the sales manager and prodcution manager and finance head. The sales transactions entered should be authorised and supported by the sales contract, sales order and dispatch challan.

2. A detailed review of the benefits and potential risk with the introduction of the corporate credit card.

The corporate credit card for business transactions can be issued to the admin head, and other department heads, who has authority to spend for the company as per the internal policies of the company. They anyhow, need to be properly instructed and trained on the purposes for which they can use the credit card . The company can restrict the limit of the usage of the credit cards issued as per the authority of the personnel to whom they are issued.

Benefits of corporate credit card:

a) This would ease out the transactions and accelerate the purchase process avoiding unnecessary delays.

b) Assigning responsibility is easy as the credit card holder is directly responsible for the spends and he is to get all the required approvals for the amount being spend by his card

c) Increased online transactions in the current day trends require that credit cards are being issued

d) Tedious and time taking activities and unnecessary costs involved in creating the purchase order, approving the same and sending the order to the vendor and getting the services can be avoided thus reducing the costs and time involved.

e) Reduction in using employees personal credt resources for company purposes

potential risk with the introduction of the corporate credit card.

a) Associates using credit cards for their personal purposes

b) Usage of credit card for unauthorized transactions which require prior approval as per the company policies

c) Tax related issues on certain transactions, which employee using the card might not be aware of.

d) Getting transaction data from employees for GL Coding and accounting might be a problem

e) Increase in chances of fraud by the associate