1. When Clipper Mail Order Co. receives telephone and fax orders, the billing department prepares an invoice. The invoice is mailed immediately. A copy of the invoice serves as a shipping notice. The shipping department removes inventory from the warehouse and prepares the shipment. When the order is complete, the goods are shipped. The clerk checks the customers credit before recording the sale in the general journal and the account receivable subsidiary ledger.

The receptionist opens the mail and lists all payments. The receptionist also handles all customer complaints and prepares sales return forms for defective merchandise. The cashier records all cash receipts in the general journal and makes the appropriate entry in the accounts receivable subsidiary ledger. The cashier prepares the daily bank deposit.

Describe at least four internal control weaknesses at Clipper Mail Order Co.

2. How may an employee embezzle funds by issuing an unauthorized sales credit memo if the appropriate segregation of functions and authorization controls were not in place?

3. For each of the following documents, describe its purpose, the functional area preparing it, and the key data included: sales order, bill of lading, credit memo.

4. What role does each of the following departments play in the sales order processing subsystem: sales, credit, and shipping?

6. With regard to segregation of duties, rule one is that transaction authorization and transaction processing should be separated. What does this require in the revenue cycle?

7. With regard to segregation of duties, rule two is that asset custody and record keeping should be separated. What does this require in the revenue cycle?

8. What role does each of the following departments play in the cash receipts subsystem: mail room, cash receipts, accounts receivable, and general ledger?

9. For each of the following documents, describe its purpose, the functional area preparing it, and the key data included: remittance advice, remittance list, deposit slip.

10. How is independent verification carried out in a manual revenue system?

+ PROCESS THREAT CONTROL PROCEDURES 1 1. SALES ORDER ENTRY 1. Incomplete or inaccurate customer orders 2 Credit sales to poor credit castomers 2 3. Legitimacy of orders 3. And 4 Stock cuts, carrying cost markdown 5. Shipping error (nong merchandise wrong quantities, wrong address) 6. Theft of inventory 2. BILLING AND AR 7. Failure to bill customers 8 Billing erron 8 9. Posting error in AR 9. 10. The of cash 10. 3. CASH COLLECTIONS 11. Loss of data 11. 4. GENERAL CONTROL ISSUES 12. Poor performance 12