1. Concerns in the Sales Department

The Managing Director of Book Worm has reviewed the operations of the company and has discovered problems with the internal control system in the Sales Department. Sales turnover averages $150,000 per month.

The problems include:

1. Sales are frequently made to customers who are credit risks with a history of irregular and slow payments.
2. Orders are promised for delivery of goods, which are not in inventory, when the order is accepted.
3. Orders are not filled on the same or next day in 45% of instances.
4. Over 5% of orders are returned for supplying the wrong items, even though the description on the order was correct.
5. Special orders, 10% of the total, requiring the acquisition of non-standard products were continually oversupplied resulting in returns and inventory write-offs.

The Managing Director asks the Internal Auditor to perform an audit of the Sales Department and suggest amendments to their operational procedures to solve these problems.

The Internal Auditor advises the Managing Director that one of her staff wrote the original procedures for processing client sales orders two years before, but has now left.

Required:

Discuss the following issues.

1. Is this an internal audit situation or simply bad management?

• Internal audit situation which

2. How could the internal audit staff assist the Managing Director rectify these problems?

• Review the inventory procedures and the handling of orders while in dispatched.

3. How can the correction of these problems assist the external audit of the financial statements for that year?
4. Can the internal auditor objectively criticise the work of the audit staff in writing the sales order procedures?
5. What are the implications of each of the weaknesses to the Book Worm.