Question

. Below is the extract of system for billing and recording accounts receivable which is in use at Point Cook Corporation Ltd (Point Cook), a manufacturer of desktop computers. All the sales are in credit.

An incoming customer order is received in the order department by a clerk who prepares a company sales order form (3 copies). The sales order form, which is not pre-numbered, contains information such as the customer’s name and address, customer’s account number, quantity and items ordered. After the sales order form has been prepared, the customer’s order is attached to it. One copy of the sales order is then passed to the credit department for credit approval. After investigation, approval of credit is noted on the form. If credit is not approved, the sales order form will be returned to the order department and an order clerk will inform customers. If credit is approved, the sales order form is then passed to the billing department where a clerk uses a computer to generate a (three-copy) pre-numbered customer’s invoice. The billing clerk determines and enters the unit prices for the items from a list of billing prices to the computer system, followed by a review and approval by the sales manager to ensure the accuracy of the unit price. The accounting system automatically multiplies the number of items times the unit price and adds the extended amounts for the total amount of the invoice, and also records the sales transaction in the accounting system. One copy of invoices is sent to the shipping department. Another copy of the sales order is sent to the shipping department where a clerk creates a shipping document (3 copies) and sends goods to customers. After the order has been shipped, a copy of the shipping document is returned to the billing department. The shipping department copy of the invoice is filed in the shipping department.

Required: Identify and explain ONE (1) weakness present in the system Note: limit your answer to 40 words for each of the strengths/weaknesses including explanations.

Answer 1

One crucial weakness in the system is the manual process of entering the unit sales price of items from a list of billing prices by the billing clerk into the computer system and the review and approval of that by the Sales Manager.

In a process with good internal control, the unit sales price of each item should be maintained as master data in the computer system and once the billing details are fed inot the system , the system should automatically pick the unit price of each item. The master data should be maintained by a separate designated person independent of billing , AR or Sales department. This will ensure segregation of duties, ensure no manual price entry is there and also ensure no chance of error , fraud or collusion in the form of price error or manipulation and adjustments.