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:
3. Analyze the internal control weaknesses in the system .

Answer 1

Internal control weakness is a failure in the implementation or effectiveness of internal controls. ... Regularly monitoring allows organizations to test the effectiveness of their internal controls and expose weaknesses in their implementation—before bad actors can exploit them.

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. At that time technology was not so updated and the process used by the company very good, reliable and an autonomous process. However as it is said that everyone needs to change with the change in the time. If we dont change then we wont be able to face the competition. Same condition has happened with this company as the competitor company are going online many cost cutting could be enable by them such as electric blll, Salary, Rent. Thus they are able to supply the same material in less price with same profit margin and they could even also offer discount and attract the customer base towards theself.

So it is necessary that this company needs to first change with the changing trend and thus reduce the cost of themself so that they can meet the competition. Many process of recording are being done by the employess and as everyone knows that though how much talented an employee is but there is a chance that there might be the error conducted by the employees. Thus this demands the automation of the process. There is no chance of recording of the wrong quantities and amount if the system is automated.

The record is being maintained in the centralised computer system thus this centralised computer could be accessed by many staff and there is high chances that they could change the data and the records could be manipulated. Thus there should restriction on accessing the computer system.

There is also lack of seperation of duties among the employees.There is need to crosscheck the work of one employees by the other . This would help in maintaining a fear in the mind of employee before conducting any error and this would also help in getting the mistakes out easily.

There is also a requirement of the rotation of duties. No one employee should conduct the same work for very long time. This rotation would help in knowing the areas where there is a chances of frauds. Even there is no backup of record. The proper IT system for getting backup of the data is very essential requirement. The Internal audit is also required to be conducted in the regular Inventory . There should also be conducted the physical verification of Inventory on Sample Basis frequently.