Premier Sports Memorabilia

(Prepared by Chris Polchinski, Lehigh University)

General Scenario Premier Sports Memorabilia General Scenario is a medium-sized, rapidly growing online and catalogue-based retailer centered in Brooklyn, New York. The company was founded in 1990 and specializes in providing the customer with authentic yet affordable sports memorabilia of their favorite players and teams, past and present.

The company gets most of its sales from the northeast region of the United States, but recently has been undergoing a campaign to spread out and increase its customer base. The company is unique in that it has a wide range of competitors such as online apparel retailers like EastBay, retail stores such as Sports Authority, and online memorabilia retailers such as the Danbury Mint. The reason for this comes from Premier’s wide range of offerings, including everything from team jerseys and hats, to autographed balls, plaques, and bats, to sports cards and figurines. The firm’s sales have been slowly increasing over the years and last year reported a satisfying $95 million. The company employs 205 employees who are spread out among its three warehouses and two offices in the tri-state area.

Premier has been well known for its close relations with its suppliers and has only had a few minor communication problems since the company was started, none of which have disrupted the business routine. The firm uses a wide base of manufacturers and memorabilia dealers around the country and is always looking for additional contacts that offer new or rare items. The company uses a series of low-tech computer assistance to assist with its various daily manual tasks and maintains controlled access to relevant data within the organization.

As the company continues to expand, many of these manual tasks will most likely be replaced with a more advanced computer technology system, but currently they serve their purpose and have not hindered business as a whole.

Revenue Cycle Procedures Premier’s revenue process is initiated when a customer places an order either online, by mail, or through a telephone representative.

The order is then manually entered into the computer system for mail or telephone orders, while online orders are automatically entered upon arrival. When an order is entered into the system, a sales representative is required to perform a credit check on the customer. If the credit is approved, a sales order is created and entered into the system for further processing.

If credit is denied, the process ends and the customer is notified of the automatic cancellation.

Four copies of each sales order are created.

The first is simply entered into the terminal in the sales department and filed. A second is sent electronically to the billing department, where it is further processed. A third is sent to the computer terminal in the warehouse for further processing. A final copy is sent to the customer as a receipt stating that the order has been received and processed. In addition to creating sales orders, every time a sale is approved, the sales records are updated and the entries are electronically posted to the sales journal file.

At the warehouse, the sales order is used as a stock release, authorizing a warehouse clerk to physically get the requested items from the shelves. The clerk then prepares a bill of lading, packing slip, and shipping notice for the goods. The shipping notice is entered into the terminal, while the other two forms are sent to the carrier along with the goods. If a certain item is out of stock or on back-order, this is specified in the shipping notice so that the billing department and AR can later be informed. The clerk then sends a copy of the shipping notice to the billing department.

The billing department reconciles the sales order and the shipping notice and the order is priced with all of the appropriate charges and taxes for the invoice. Two copies of the invoice are created. One copy is sent to the customer in the form of a bill; the other is sent electronically to AR, where the records are updated by posting to the AR journal file.

The customer sends payment and remittance advice to Premier, which is received in the mail room where clerks open and sort.

The check is sent to the cash receipts department, where the payment is recorded in the cash receipts journal file. Two copies of a deposit slip are created after the amount is recorded. One copy is entered into the system via the cash receipts terminal, and the other copy along with the customer check is sent to the bank to be deposited. The remittance advice is sent to the AR department, where it is used to update the AR files.

Finally, at the end of each day, both the sales department and the AR department prepare journal vouchers stating the total effects of the day’s transactions. These vouchers are sent to the AR department, which also acts as the company’s general ledger department due to a lack of personnel. Here both vouchers are reconciled and recorded in the general ledger’s control accounts.

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.