Identify the internal controls in the system that are potentially effective, the risk that the contril could alleviate and one test of control for each of the identified potentially effective controls.

You are an audit manager and assigned to assist in the planning for the current year's audit engagement of MPP Ltd. MPP Ltd has internal auditors, a risk committee, an audit committee and a governing board. You extracted the following information from a review of the systems notes in the permanent file and perusal of the new internal control manual: 1. Manual delivery notes for dispatch of tiles to customers are raised by the dispatch department from the sales order form. Where a delivery is only partially filled, the delivery note is marked hold for Invoice and placed on the incomplete deliveries file. At month end, the supervisor of the dispatch department is responsible for follow-up of the reasons why incomplete deliveries have been outstanding for greater than 30 days. 2. Returns of medical equipment by customers due to inferior quality, incorrect specifications or oversupply are received by the dispatch department where staff are required to check quantity and condition of the returned tiles. Details noted by the dispatch personnel, including the reason for the return, are recorded on a 'goods returned note. Once completed, this document is passed on to the trade receivables clerk who raises a credit note and sends it to the customer. 3. Once a delivery has occurred, the office copy manual delivery note is forwarded to the trade receivables clerk who is responsible for generating an invoice on the computer system. An invoice is raised by inputting the total quantity delivered (Note: this could be a number of partial deliveries) and the stock code which is also recorded on the delivery note. The computer then automatically retrieves the stock code price from the selling price master file. Posting to the debtors account occurs automatically once the trade receivables clerk has performed a screen check on the accuracy of the input of delivery details. 4. For valued customers, discounts are applied in accordance with the company's volume rating system. The trade receivables clerk is responsible for updating the individual customer volume ratings every six months after preparing the 'sales volume analysis by customer report. This report is authorised by the sales director prior to updating the customer discounts 5: A sales journal summarising all sales invoices is prepared monthly by the computer system. This journal is then used by the trade receivables clerk for posting to the general ledger 6. Receipts from debtors are passed on to the trade receivables clerk after having been opened by the mail room. The trade receivables clerk lists all receipts from the debtors and then prepares a bank deposit slip. The list prepared by the trade receivables clerk is used to enter the debtors payments on the computer system. The batch total of postings to the Individual debtors accounts is balanced to the bank deposit slip before processing occurs on the system. At each month end, the trade receivables clerk prepares a reconciliation of the trade receivables ledger to the debtors control account in the general ledger. 7. The computer generates an aged analysis at month end based upon all invoices that have been processed onto the system for the period up until the last day of the month & The financial controller obtains the latest trade receivables aged analysis at the end of each month and reviews all amounts outstanding for longer than 90 days. The trade receivables clerk is required to detail reasons for delays in payment by long outstanding debtors and the financial controller discusses items of concern with the clerk, 9. Usually an action plan is agreed for follow-up, this may include involvement of debt collectors or the issuing of writs Where necessary the financial controller records details of amounts that should be provided for as doubtful debtors. Whilst performing this review, the financial controller notes the level of individual debtors' balances and, in instances where he is uncomfortable with the level of this balance, he instructs the dispatch area to withhold any shipments until a minimum prescribed payment is received Jordan Prescott, your partner on the audit, has mentioned to you that in the past a substantive approach had been adopted for the audit of MPP Ltd. He now feels that, with the improvements that the client claims to have made to the systems of internal control, an opportunity exists to place reliance on the internal controls and therefore reduce the extent of substantive work. Write a report, including a brief executive summary, to your managing partner that addresses the controls issues below and make recommendations as to whether it is advisable to use an audit strategy that relies on internal control testing only. Where indicated, use the required format to answer that question.