Question

DURAPLAST Company Ltd., opened its doors in 1979 as a wholesale supplier of plumbing equipment, tools, and parts to hardware stores, home-improvement centers, and professional plumbers in the Accra-Tema Metropolitan area. Over the years they have expanded their operations to serve customers across the nation and now employ over 200 people as technical representatives, buyers, warehouse workers, and sales and office staff. Most recently DURAPLAST has experienced fierce competition from the large online discount stores such as Qualiplast and Interplast. In addition, the company is suffering from operational inefficiencies related to its archaic information system. DURAPLAST’s revenue cycle procedures are described in the following paragraphs.

Revenue Cycle

DURAPLAST’s sales department consists of 17 full-time and part-time employees. They receive orders via traditional mail, e-mail, telephone, and the occasional walk-in. Because DURAPLAST is a wholesaler, the vast majority of its business is conducted on a credit basis. The process begins in the sales department, where the sales clerk enters the customer’s order into the centralized computer sales order system. The computer and file server are housed in DURAPLAST’s small data processing department. If the customer has done business with DURAPLAST in the past his or her data are already on file. If the customer is a first-time buyer, however, the clerk creates a new record in the customer file. The system then creates a record of the transaction in the open sales order file. When the order is entered, an electronic copy of it is sent to the customer’s e-mail address as confirmation.

A clerk in the warehouse department periodically reviews the open sales order file from a terminal and prints two copies of a stock release document for each new sale, which he uses to pick the items sold from the shelves. The warehouse clerk sends one copy of the stock release to the sales department and the second copy, along with the goods, to the shipping department.

The warehouse clerk then updates the inventory subsidiary file to reflect the items and quantities shipped. Upon receipt of the stock release document, the sales clerk accesses the open sales order file from a terminal, closes the sales order, and files the stock release document in the sales department. The sales order system automatically posts these transactions to the sales, inventory control, and cost-of-goods sold accounts in the general ledger file.

Upon receipt of the goods and the stock release, the shipping department clerk prepares the goods for shipment to the customer. The clerk prepares three copies of the bill of lading. Two of these go with the goods to the carrier and the third, along with the stock release document, is filed in the shipping department. The billing department clerk reviews the closed sales orders from a terminal and prepares two copies of the sales invoice. One copy is mailed to the customer and the other is filed in the billing department. The clerk then creates a new record in the account receivable subsidiary file. The sales order system automatically updates the account receivable control account in the general ledger file.

DURAPLAST has hired you to review its sales order procedures for internal control compliance and to make recommendations for changes.

You are required to:

. Analyze the internal control weaknesses in the system.

Answer 1

Internal control Weaknesses

There are various internal control weaknesses found in the system in the organization from the order to delivery and to division of cash bases and credit bases of sale and payment collection and finally review of the customer after sale service procedure. These causes result to loss or damges of the assets, loss of resources, and finally decline in the revenue of the organization. these deficienicies can easily be sort out or rectified by small changes or modifying in the existing processes by proper internal control measures.

These are the some internal control weaknesses found in the system:

-Inadequate documentation or records is one of the serious issues in which input of the data in proper financial records are not underlying.

-Financial documents must be proper number pre-numbered to ensure all the transcation are recorded and accounted properly.

-This will help to record transcation twice

-Here, key business cycle is not properly defined whivh cause to serious impact on recording of the transcation, this will rectify by flowcharts which defining the key business processes.

-Some of the business cycle is important like sales and accounts, cash management, banking procedure, purchase and accounts payable.

-Inventory control for the selling goods will be made properly and in proper cycle.

-It is also observed that there is no proper of lack of control found in the authorization of the transcation before the commitements of the resources.

-There is also ineffective information systems observed as more time spent on this system may result to benefit in the long run and also effnciencies to be recorded.

-Due to lack of security observed may cause fraud and serious impact upon the firms

-Computer system and other equipment related to, should be protected towards password and should be checked at the regular intervals.

-There must be protection of the information like credit cards, banking details, also to be checked at regular intervals for sfety grounds.

-It is also to be observed that there should be no formal ethical policies and procedure which is essential for the success of the organization

-It is also to be observed that there is no cleraly job roles, responsibilities defined wherin representatives link with the customer, suppliers, and the competitors.

so that it will help to raise the efficiency of the business and also sort out various issues which are at customer end and also to tackle with the rivals firms.

There should be separtaion of the duties for control purpose is alos observed

And finally, Inadequate disaster recovery, backups, and the business continuity plans must be proper done for the growth of the firms and more over control purpose not in the short duration but also in the long run.