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Coast Foodservice is a wholesale food distributor located on the Central Coast.

It sells a variety of meat, frozen foods and grocery to foodservice organizations from Salinas to Camarillo. It is a privately owned corporation with a 30,000 square facility. It has 50 employees and virtually operates 24 hours a day, 6 days per week. The company generates approximately $20 million in annual sales and most sales are on credit.

Coast Foodservice uses an old legacy database accounting software and is considering an upgrade to a customized ERP computer system designed by a local software company. The Company has hired your auditing firm to assess its operations and recommend improvements to its internal controls to reduce risk and improve the accounting system.

Sales Order Processing

Coast Foodservices salespeople telephone and bring handwritten orders to the office, which prepares an invoice.The Sales Manager approves the customers credit. If a salesperson has a special delivery order for a customer, they pick the goods from the warehouse and deliver the order themselves to avoid the burdensome time for warehouse personnel to assemble the order. A copy of the invoice serves as a shipping notice and picking slip for the warehouse. The shipping department (part of warehouse operations) removes inventory from the warehouse and prepares the shipment. When the order is complete, the goods are shipped and inventory is updated by the warehouse staff. The office clerk records the sale in the general journal and the account receivable subsidiary ledger.

Cash Receipts

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 accounts receivable clerk records all cash receipts in the general journal and makes the appropriate entry in the accounts receivable subsidiary ledger. The accounts receivable clerk prepares the daily bank deposit. The Controller makes the bank deposit and later reconciles the bank statement on a monthly basis.

Required

1. Analyze the physical internal control weaknesses of the company for the revenue cycle using the six

   categories of physical control activities and the COSO framework.