Santasgiftworld.com is an online retailer of children’s toys. The chief executive officer has noticed that margins have been deteriorating over those of previous years due to an increase in cost of goods sold coupled with a much faster increase in freight out and bad-debt expenses. He has also heard through the grapevine that some customers have complained of unauthorized charges on their credit cards. Other customers have complained of placing orders and never having received them, necessitating replacement shipments. Still more complaints of unauthorized charges have been received from individuals claiming never to have ordered products at all. You have been contacted to help Santasgiftworld.com improve its operations and to prevent possible litigation arising from continuing problems of this type.
Santasgiftworld.com employs 100 individuals. Its customer base consists mainly of individuals but also smaller toy stores, day-care centres, and schools, all of which order through the company website. The website has pages where customers can view all of the products and prices. There is a virtual shopping cart available for each customer once he or she has set up an account. A customer choosing to make a purchase simply clicks on the direct link to the shopping cart from the desired product and proceeds to Santasgiftworld.com employs 100 individuals. Its customer base consists mainly of individuals but also smaller toy stores, day-care centres, and schools, all of which order through the company website. The website has pages where customers can view all of the products and prices. There is a virtual shopping cart available for each customer once he or she has set up an account. A customer choosing to make a purchase simply clicks on the direct link to the shopping cart from the desired product and proceeds to checkout. There the customer is prompted to choose a major credit card payment method and enter the shipping address. Once this information has been entered, the customer chooses a shipping method: Canada Post, UPS, or Federal Express. The customer is then informed of the total price and the date to expect shipment.
Every two hours, the orders placed on the website are reviewed, then entered into the company’s main database for fulfillment. Once an order is shipped, credit card information is extracted and transmitted for settlement in Santasgiftworld .corn’s favour.Orders have been placed with the company, but the customers in question honestly deny ever submitting those orders. It turns out that many of those orders had been placed by the children of the customers, without the customers’ knowledge. The children were able to gain access to their
parents' accounts after the web ordering system recognized cookies on the hard drives. When the children went to the website, the page recognized them as the users of the account and gave them authorized access to make purchases.
REQUIRED
Identify control weaknesses at Santasgiftworld.com. For each control weakness,
a. State the exposure created.
b. Provide a recommendation to prevent or detect the exposure.
c. Provide an audit test of detail that could be used in assessing the impact on the financial statements.
d. Identify the audit objective(s) addressed by the audit tests.