BoB is an established distributor of printing machines in Klang Valley. In view of the recent outbreak of Covid 19, the performance of the company has been very much disappointing. It has been a steady decline in sales and profit is also reported to be low. On the other hand, there is a significant increase in bad debts during this pandemic period. Despite the hard-pressed situation, the directors of the company are optimistic that the new product range innovations will increase sale for the company in near future. In addition, they are not quite certain that the present internal controls on sales and trade receivables system is indeed meeting the systems objectives and hence BoB engaged your firm to conduct a review of the internal control system and to recommend improvements where appropriate.

The examination of the internal control system of sales and trade receivables system revealed the following:

(1) There are four sales teams in the company headed by four sales managers responsible for each area (Petaling Jaya, Shah Alam, Cheras and Kepong) with between four and six sales representatives per area. Each sales representative is engaged in the generation of sales and the management of customer accounts which include the credit control.

(2) Sales incentive in the form of performance bonus is paid to sales representatives and the amount is determined by the gross invoiced sales. Based on the companys policies each representative is given the authority to provide discount prices up to 30% against standard prices determined by the board of directors. At the end of the month, the sales manager will review the total sales amount of the sales representatives based on invoices raised and he will then forward the authorised performance bonus summaries to one of the account clerks for processing. The accounts clerk will immediately enter the information onto the companys payroll system and such amount will be reflected in the subsequent payment of bonuses.

(3) The sales of the company are normally generated through telephone contact or appointments by the sales representatives. Prior to accepting sales orders, the sales representatives are required to assess the creditworthiness and granting credit facilities to the customers. All sales representatives have received training to carry out the credit control procedures.

(4) The companys policy requires all customer orders to be confirmed by a simple e-mail message to the appropriate sales representative.

(5) Upon receipt of an e-mailed order, the relevant sales representatives are required to perform the following:

(i) An electronic copy of the order will be emailed to the companys warehouse staff together with any appropriate clarifying message as required. Such email will initiate the picking of the order from the warehouse inventory along with a pre-numbered delivery note. A copy of each delivery note will be retained in the warehouse and it will be subsequently matched and filed by warehouse staff with: (a) the customer signed copy returned by BoBs delivery drivers, and b) a downloaded hard copy of the e-mailed order.

(ii) A sales invoice will be forwarded to the customer using pre-numbered stationery generated in the sales office. The invoice includes the date of the invoice, sales and customer order reference, name and address, detail of the machine(s) supplied which include the number of unit, price information and confirmation of BoB.s standard payment terms. A copy of each invoice raised is will be kept in the sales office.

(iii) The electronic copies of the customer order and sales invoice will be emailed to the accounts department. Upon receipt of these documents, the accounting officer will perform the following:

(a) The hard copies of the customer order and invoice will be downloaded,

(b) A new customer account will be open right away in the trade receivables ledger

(c) Sales invoice will be posted to the companys accounting records and the source documents will be filed in sequential number order attached to the e-mailed copy orders.

Required:

(a) Outline five objectives of internal controls over the sales and trade receivables system of BoB. (5 marks)

(b) (i) Identify and discuss Five (5) weaknesses in the sales and trade receivable system; and (10 marks)

(ii) Proposed the remedial action to overcome the weaknesses identified. (5 marks)