Question

Question #4 (10 marks) Scenario: At Company B, each salesperson is responsible for deciding on the correct credit policies for his or her customers. For example, the salesperson decides if Nexus should sell to the customer on credit and how high the credit limit should be. Salespeople receive a commission based on their sales. 1. Based on the scenario, identify the weakness. 2. What could go wrong? 3. Provide a recommendation to address/remove we control weakness

Answer 1

Answer :

1.

Weakness :

In the given scenario, there is a control weakness in the procedure of providing goods on credit to customers.

Each sales person has the authority to decide about whether the goods to be sold to customer on credit and also about the credit limit.

There is a control weakness in this procedure .

2.

What may go wrong :

As in the given scenario,

Sales person has the authority to decide which customer to be sold goods on credit and what should be the credit limit,

Sales person can give credit to all the customer and may sell the goods on highest credit limit, because sales person will get commission on sales and he may want to increase his sales anyhow.

The sale person will try to increase his sales so that he may increase his sales commission. For this reason he will try to sell maximum goods to customer . In this way he can also decide to sell goods on credit to customer which are not otherwise eligible or suitable to get the credit.

3.

Recommendation :

There are two ways to remove or correct this control weakness .

Either the sales person should not have authority to decide on which customer to be provided goods on credit and the credit terms.

Credit terms should be decided by some independent manager or other employee, who does not gets any commission on sales.

Or , if sales person has to decide on credit and credit terms on sale of goods, the commmission on sales should not be given on credit sales. So that sales person do not give credit to wrong customer .

sales Commission may be provided on cash sales, so that sales person be motivated to do more cash sales.

~~~ Dear student, please give a thumbs up, if it helps. Thankyou so much.