Internal Control Weakness And Strengths According To Interview Results

Internal Control Weaknesses According to Interview Results:

1)      Over and under shipments of products. There seems to be miscommunication between the warehouse and shipping department. When examining the flowchart, SDE does not verify items (orders) before they are shipped.

2)      Large number of accounting records are not recorded on a timely basis. This would mean that there is a high probability that accounting records are misstated due to not being recorded on time. When examining the flowchart to see what is taking so long to update accounting records, transactions have to go through a long process before they can be put into the accounting system. First, an order is sent to the database. The accountant should be able to quickly retrieve order information from this database. Next, SDE checks credit limit and outstanding orders. Third, the company may have to stop an order due to insufficient funding or other issues. Forth, SDE needs to approve the order. The bad thing is that SDE does not verify customer order and shipment according to the flowcharts. This could also contribute to material misstatement, because order amounts could be inaccurate.

3)      SDE refers sales order as a stock release when authorized to remove goods from warehouse. This could also be one of the causes that is contributing to accounting records not being recorded on a timely basis. There should be a sales order right when the customer pays for the product and not an authorization to remove goods from warehouse.

4)      Anyone can perform a credit check. This causes an internal control risk, because only certain individuals should have access to certain things. For example, only certain individuals should be able to perform a credit check, while others are in charge of other business operations.

5)      Credit authorization process. According to the interview results, the company wants the sales department to control this activity to provide more personalized customer service. The problem with this is that the company’s sales department is paid partially commission, which creates a conflict of interest. Members of the sales department cannot effectively work together to provide personal customer service if each member is competing against one another for sales.

Internal Control Strengths According to Interview Results:

1)      Computer can display all electronic merchandise that is available. This allows SDE to quickly analysis what kids of products that are in demand and which are not. Also, the company is able to effectively keep track of all merchandise that is available.

2)      Orders directly go to the customer order database. The company can quickly pull up information about certain customers and can examine what kind of products certain customers purchased.

3)      Company compares the sales order to the shipping notification information. If there is a shipping problem, the company can compare the sales order to the shipping notification system to see if the right sales order was shipped.

4)      Sales order is filed in chronological order. This allows the person in charge of filing sales orders to quickly access certain order information fast if needed.