Bait ‘n Reel Superstore

(Prepared by Matt Wisser, Lehigh University)

Background Jamie Roberts, an avid fisherman and environmentalist, established Bait ‘n Reel in 1983.

Growing up in Pennsylvania’s Pocono Mountains region, Roberts was lucky enough to have a large lake right down the road where he found himself fishing all throughout the year. Unfortunately, he had to drive more than 15 miles to purchase his fishing supplies, such as lines, hooks, and bait, among other things.

Throughout the years of his early adulthood, he frequently overheard other fishermen vocalizing their displeasure at not having a local fishing store to serve their needs. Because of this, Roberts vowed to himself that he would open his own store if he could ever save up enough money.

By 1983, he had sufficient funds in his bank account and the opportunity arose as a local grocery store was put up for sale. He purchased the building and converted it into a Bait ‘n Reel fishing store. His first customers were locals who had fished with Roberts over the years. The local convenience factor and the simple pleasure of helping out a friend enticed them to shop there. However, after many years, people from all over the county started to come as Roberts increased his advertising efforts, emphasizing his ability to provide excellent service and the wide supply of fishing goods in stock. This included highend fly-fishing rods, reels, drift boats-canoes, as well as less expensive daily use items such as hooks, lines, etc.

By the mid-1990s, the building expanded into a superstore, and the number of employees increased each year. With the help of a friend, Roberts also installed an automated computer system to help make operations more effective and efficient, in addition to reducing the amount of paper used. Revenue increased sharply during the four years after the implementation of the computer system.

In spite of this, Roberts had some questions about the processes, as many of the subsidiary accounts did not match up with the general ledger. This didn’t prove to be a material problem, however, until 2001, when the computers began listing supplies in the inventory account that were actually not on the shelves.

This created problems as customers became frustrated by stock-outs. Roberts knew something was wrong, but he couldn’t put his finger on it.

Revenue Cycle Sales Order Processing Procedures When the customer wants to place an order, he or she typically calls it in so that the items are ready to be picked up at their convenience.
During the call, the sales department desk clerk fills out a blank sales order form according to the customer’s needs. Following the call, the desk clerk checks the customer’s creditworthiness on a computer terminal. When the customer’s credit is verified, the clerk stamps the sales order approved. He then hands off the approved sales order to the sales manager for further processing.
Once the sales manager receives the approved sales order, he reviews it and places it in an in-process bin on his desk. This bin contains all the approved sales orders from the entire business day. At the end of the day, the sales manager keys in all of the approved sales orders for the day into his computer terminal. When all sales orders are entered, the clerk clicks the Confirm and Save button.
This triggers the overnight batch process, which produces an electronic copy of each sales order. This electronic copy is distributed to computer terminals of their respective parties overnight so they are ready by the next morning. One copy of the electronic sales order is sent to the manufacturing department;
another is sent to the shipping department;
and a third is e-mailed to the customer for their personal records. This process also automatically updates each individual customer record file on the sales department’s computer to reflect the transactions. The hard copy of the approved sales order is filed in the sales department.
When the warehouse manager arrives in the morning, he logs on to the department terminal and reviews all electronic sales orders from the prior business day. He prints out two copies of the electronic sales order to use as a stock release and a shipping slip, respectively.
Using the stock release, the warehouse clerk picks the selected goods from the shelves. The goods, accompanied by both documents, are sent to the shipping department. The clerk then goes back to the terminal and updates the inventory subsidiary ledger and the general ledger.
Once the shipping clerk receives the goods, the stock release, and the shipping slip, he matches them to the corresponding electronic sales order contained in his terminal’s inbox.
Assuming everything matches, he prints out a hard copy of the sales order, which the clerk then uses to prepare three copies of the bill of lading (BOL). Two of these copies, along with the shipping slip, are sent along with the goods to the carrier. The stock release is sent to the AR department. The other BOL copy, along with the sales order, is filed in the shipping department.
When the AR clerk receives the stock release, he has sufficient information about the sale to create a sales invoice, which is immediately mailed to the customer. After mailing the invoice, the clerk goes to his terminal and updates the sales journal, AR subsidiary ledger, and general ledger from the information on the stock release. After the records are updated, the stock release is filed in the AR department for audit trail purposes.
Cash Receipts Procedures At Bait ‘n Reel, the entire basement has been converted into a mail room. The postmaster has been faithfully working for the company for over five years and has the duty of collecting all incoming mail. For customer payments, he opens the envelope, collects the customer’s check and remittance advice, and reconciles the two documents. To ensure that payments are not lost, he also creates two copies of a remittance list. One copy of this remittance list is sent to the AR department along with the corresponding remittance advices. The other copy of the remittance list accompanies the checks to the cash receipts department.
Once the checks and remittance list arrive in the cash receipts department, the assistant treasurer reconciles the documents, signs the check, and prepares three copies of the deposit slip. He then updates the cash receipts journal and the general ledger on his computer terminal.
After he updates these records, the signed check and two copies of the deposit slip are sent to the bank. Meanwhile, the third copy of the deposit slip and the remittance list are filed in the department.
When the AR clerk acquires the remittance list and remittance advices from the mail room, he reconciles the two documents.
He then uses his terminal to update the AR subsidiary ledger and the general ledger. Once he does so, the two documents are filed in the department.
Required:

a. Create a data flow diagram of the current system.

b. Create a document flowchart of the existing system.

c. Analyze the internal control weaknesses in the system. Model your response according to the six categories of physical control activities specified in SAS 78.

d. Prepare a system flowchart of a redesigned computer-based system that resolves the control weaknesses you identified.