Question

Part #1: Elegance – Women and Men (LLC) Elegance – Women and Men (LLC) is a rapidly growing luxury lifestyle brand led by a talented and ambitious management team. The company features distinctive designs, materials and craftsmanship with a jet-set aesthetic that combines stylish elegance and a sporty attitude. The company aims to provide American top luxury clothing and accessories including handbags, small leather goods, eyewear, jewelry and watches and footwear in three segments—retail, wholesale and licensing. Elegance plans to go public within the next two or three years. Elegance operates forty retail stores in populous American cities. Elegance operates a centralized purchasing and warehousing facility and employs a periodic inventory system. All purchases of merchandise and supplies are placed through Elegance’s central purchasing department. On occasion, each store management can make purchases as needed. Merchandise and supplies received at the central warehouse are distributed to the retail stores as needed. The goal of the periodic inventory system at the central facility is to maintain current inventory records, which would include designated reorder points, optimum order quantities, and balance-on-hand information as needed. The participants involved in Elegance's inventory system include: (1) retail stores, (2) the inventory control department, (3) the warehouse, (4) the purchasing department, (5) accounts payable, and (6) outside vendors. Inventory control is responsible for the maintenance of periodic inventory records for each item carried in inventory. The warehouse department maintains the physical inventory of all items carried by the company's retail stores. All deliveries of merchandise and supplies from vendors are received by receiving clerks in this department and all distributions to retail stores are filled by shipping clerks in this department. The purchasing department placed every order for items needed by the company. The accounts payable department maintains the subsidiary ledger with vendors and other creditors. All payments are processed by this department. The documents used by these various departments are as follows: Retail Store Requisition (Form RSR): The retail stores submit this document to the central warehouse whenever merchandise or supplies are needed at the stores. The shipping clerks in the warehouse department fill the orders from inventory and have them delivered to the stores. Four copies of the document are prepared. Two copies are sent to the warehouse. The third copy is filed for reference. The fourth copy is discarded. Purchase Requisition (Form PR): Sue Jones, the inventory control clerk in the inventory control department, prepares this document when the quantity on hand for an item falls below the designated reorder point. Two copies of the document are prepared. One copy is forwarded to the purchasing department and the order is filed. Sue is a hard worker and has been with Elegance from inception. Based on experience and wisdom, Sue knows the right time to place an order. Purchase Order (Form PO): The purchasing department, under the leadership of Sammi Jones, prepares this document based on information found in the purchase requisition. Five copies of the purchase order are prepared. The disposition of these copies is as follows: copy 1 to vendor, copy 2 to accounts payable department, copy 3 to inventory control department, copy 4 to warehouse, and copy 5 is filed for reference. Receiving Report (Form RR): The warehouse department, supervised by Alma Jones, prepares this document when ordered items are received from vendors. A receiving clerk completes the document by indicating the vendor's name, the date the shipment is received, and the quantity of each item received. Five copies of the report are prepared. Copy 1 is sent to the accounts payable department. Copy 2 is sent to the purchasing department. Copy 3 is sent to the inventory control department. Copy 4 and Copy 5 are retained by the warehouse department, compared with the purchase order form in its files, and filed together with this purchase order form for future reference. Invoices: Invoices received from vendors are billed for payment. Several copies of each invoice are prepared by the vendor, but only two copies are of concern to the Elegance: the copy that is received by the company's accounts payable department and the copy that is retained by the vendor for reference. The accounts payable department, supervised by Tommy Lew, compares the vendor invoice with its file copy of the original purchase order and its file copy of the warehouse receiving report. Based on this information, adjustments to the bill amount on the invoice are made (e.g., for damaged goods, for trade discounts, or for cash discount), a check is prepared, and the payment is mailed to the vendor. Also, when business is very busy, Tommy is needed to help the IT staff with database administrative and programming duties. As a result, Tommy has access to the configuration tables. Many on Elegance staff acknowledge that Tommy is “The Man” when it comes to getting things done. Back-office operations: The main location of processing transactions is located right off 37th Street and 7th Avenue in New York City. However, to prevent any unexpected business interruptions, Elegance has a contract with ACME LLC to set up all the equipment it needs including furniture, telephone jacks and computer equipment to ensure a seamless continuation of business operations in case of an emergency. ACME has agreed to lease Elegance space on 40th and 2nd Avenue in New York City. Requirements:

1. Create a revised document flowchart which corrects any possible internal control weaknesses of Elegance.

2. Discuss and make recommendations to mitigate any other risks identified. Prioritize your findings.

Answer 1