DC 11-4 Control Weaknesses: Shipping and Billing.

LO2 Ajax Inc. recently implemented a new accounting system to process the shipping, billing, and accounts receivable records more efficiently. During the interim work of Ajaxs auditors, an assistant completed the review of the accounting system and the internal controls. The assistant determined the following information concerning the computer systems and the processing and con- trol of shipping notices and customer invoices:

The computer system documentation consists of the following items: program listings, error list- ings, logs, and database dictionaries. The system and documentation are maintained by the IT administrator. To increase efficiency, batch totals and processing controls are not used in the system.

Ajax ships its products directly from two warehouses, which forward shipping notices to general accounting. There, the billing clerk enters the price of the item and accounts for the numerical sequence of the shipping notices. The billing clerk also manually pre- pares daily adding machine tapes of the units shipped and the sales amounts. The computer processing output consists of the following:

(a) A three-copy invoice that is forwarded to the billing clerk

(b) A daily sales register showing the aggre- gate totals of units shipped and sales amounts that the billing clerk compares with the adding machine tapes

The billing clerk mails two copies of each invoice to the customer and retains the third copy in an open invoice file that serves as a detailed accounts receivable record.

Required:

a. Prepare a list of weaknesses in internal control (manual and computer), and for each weakness make one or more recommendations.

b. Suggest how Ajaxs computer processing over shipping and billing could be improved through the use of remote terminals to enter shipping notices. Describe appropriate controls for such an online data entry system.