Fourseas Wholesaler Limited

CASE BACKGROUND

Fourseas is a wholesaler of sundries goods to business customers in Hong Kong. Fourseas gains its competitive edge by offering a wide variety of quality food products at competitive prices, which goods ranging from frozen sea food to toilet papers, bottled drinks and canned food.

Fourseas is a publicly listed in the Hong Kong Stock Exchange and your firm has been appointed as its auditor. You are the manager in-chargeof this year's audit and you are currently examining Fourseas'business processes such as order-to-cash and procure-to- pay processes and related accounts. Fourseas'head quarter is in its Chai Wan where the Chai Wan Warehouse is located. The following describes Fourseas'system configuration and business processes.

MONEY TALK SYSTEM

Overview

Fourseas recently purchased and installed Money Talk, an accounting information system that runs on a client-server network configuration. Eric Wong, a systems analysist in Fourseas'IT department led a team in system specification, business analysis, system modification and system implementation the Money Talk to meet Fourseas'specific needs.

Upon Money Talk's being successfully installed and went live, Eric continued to oversee the initial running of the new Money Talk to ensure a smooth cut-over from the old legacy system. After six months, Eric Wong was promoted to Chai Wan Warehouse Manager with responsibility for product purchasing function.

Money Talk comprises of the following modules:

Order2Cash (O2C)

Manages revenue and cash receipt process. Files accessed by O2C include but not limited to: Customer Master file (which contain approved customer's detail and their sales and credit history and credit worthiness analysis), Sales Invoice file, Sales Journal, Accounts Receivable Subsidiary Ledger, Cash Receipt Journal, Shipping Log, BOL file, Packing Slip file.

Procure2Pay (P2P)

Manages procurement, purchase, order fulfilment and payment process. Files accessed by P2P include but not limited to: Vendor Master file (which contain approved vendor's details and their purchase history), Supplier's Invoice file, Supplier's Remittance Advices, Purchase Journal, Good Receipt Note, Accounts Payable Subsidiary Ledger, Accounts Payable Voucher file, Cash Disbursement Journal, Cheque log file.

Record2Report (R2R)

Manages transactions recording and reporting process. Files accessed by R2R include but not limited to: Chart of Accounts, General Ledger, log files for various events captured,

ORDER TO CASH PROCESS

Sales Department

Customers send their orders by mail or fax to the sales department. Upon receiving an order, a sales clerk checks the credit worthiness via a terminal the customer record in Money Talk's Customer Master file to review the available credit before creating a Sales Invoice record. For customers with no or insufficient available credit, the clerk submits the order to the credit manager for approval. If granted, the credit manager verbally authorizes and instruct the clerk to offer or increase the customer's line of creditaccordingly. For approved sales, a record is added to the Sales Invoice file in Money Talk's O2C system which automatically assigns an Invoice Number, which is the primary key for the record. The clerk manually enters the remainder of the order data.

Chai Wan Warehouse

Based on input from the sales invoice, the computer terminal at Chai Wan Warehouse retrieves from MoneyTalk's O2C system and automatically prints a Stock Release, which the Chai Wan Warehouse staff uses to pick the goods. The goods are sent to the Shipping Department along with the Stock Release. Once the goods have left the Chai Wan Warehouse, the clerk at the warehouse update the Money Talk to confirms to the system the quantity sold and the system automatically updates the Quantity on Hand field in the respective inventory record in the Inventory Subsidiary Ledger.

Shipping Department

The Shipping Department upon receiving the goods from the warehouse, checks and prepares them for shipment, selects a carrier and prepares the Packing Slip and Bill Of Lading (BOL). Once the goods are shipped, the clerk update Money Talk to record the shipment to the Shipping Log file.

Billing Department

At the end of the day Money Talk automatically searches the Sales Invoice and Shipping Log files for items shipped and prepares a hard copy Customer Invoice, which is mailed to the customer the next day.

Cash Receipts

Tiffany, the cash receipts clerk, receives the customer cheques and Remittance Advices directly from the customer. She records this transaction by entering the Invoice Number (taken from the Remittance Advice) into Money Talk. The system automatically creates a Cash Receipts record. Tiffany then manually adds the customer number, amount, and payment date to the Cash Receipts record. At the end of the day she prepares a deposit slip and sends the cheques to the bank. She files customers'Remittance Advices in her office.

Required:

a. Identify in EACH process at least 3 but not more than 5 exposures.

b. Against each exposure as indicated in A, describe ONE possible risk and suggest ONE control procedure that can mitigate the exposure identified.