Maicom Construction Materials Inc., hereinafter referred to as "MCM", is a construction materials company established in Moncton, New Brunswick. Its facilities (warehouse, store and offices) are located in the Caledonia Industrial Park. MCM primarily serves the Southeastern New Brunswick region. 80% of its turnover comes from construction contractors, the other 20% being made up of home owners wishing to carry out minor renovations to their homes.

The following paragraphs provide a brief description of the activities surrounding the MCM sales, receivables and collections cycle.

1. MCM grants credit only to construction contractors . Before an account is opened for a client, an analysis including a financial background check is performed and a credit limit is established for each client.Historically, this task fell under the responsibility of the chief accountant. As for homeowners, they must pay cash (cash, debit or credit card) when picking up materials in store. Cash sales are recorded at a point-of-sale terminal operated by a cashier at the exit of the store. There is only one point of sale terminal.
2. The MCM sales force is made up of three salespeople. These are responsible for developing the market for construction contractors. Thus, in addition to maintaining the business relationship with existing customers, they take care of finding new customers, promoting MCM products and closing sales. Two years ago, to better compete with large chains such as Home Depot and Home Hardware, MCM introduced a supplemental compensation system for salespeople under which they receive attractive bonuses for achieving sales targets. sales. This decision seems to have paid off, as turnover from this niche has increased by 75% in two years.
3. The seller has the authority to negotiate sales prices with customers,provided certain limits are respected. These prices are displayed in an online document("Price List") which the seller consults as necessary . The price list, which covers the main products offered by the company, is updated every week byMCM's chief accountant according to the most recent prices paid for the purchase of materials, plus a margin of 25% profit. In certain circumstances, depending on the order, the seller may accept a lower price than the displayed price.
4. When a sale is made with a contractor, the seller prepares a pre-numbered sales slip, in three copies, from the customer's purchase order. The sales slip indicates the quantity and price for each item ordered . The first copy is sent to the warehouse, where a shipping clerk prepares the order. This first copy accompanies the delivery of the construction materials and is given to the customer, and thereby becomes a shipping slip. The second copy is sent to the accounting clerk. The third copy is kept by the seller who classifies it in numerical order.
5. The accounting clerk prepares the invoice, pre-numbered, in two copies, based on the information on the sales slip.The first copy of the invoice is sent to the customer . The accounting clerk enters the invoice in the sales file, which automatically updates the customer accounts auxiliary and the general ledger. The sales slip is then attached with the second copy of the invoice, and everything is filed alphabetically (by customer).
6. Since the strategic decision two years ago to focus efforts on turnover , salespeople can now have direct access to the computer system to create new customers.This helps expedite business by eliminating many of the steps previously required before creating the client in the system and reduces the number of stakeholders in the process. Notably, the new procedure makes it possible to respond to customer needs more quickly since they do not have to wait the few extra days while waiting for their credit limit to be approved , with the seller being able to enter the limit when checking out. the creation of the client. Much of the increase in revenue is attributed to this simplification of the process.
7. All customer account collections arrive by mail. Every day, the receptionist, who receives and opens the mail, prepares two copies of a list of payments received.She keeps the first copy which she files in order of date and the second copy is sent to the accounting clerk with the receipts.
8. When the store closes each evening, the cashier balances his cash register, reconciling the money collected with the information produced by the point-of-sale terminal.If there are discrepancies, he indicates the explanations on his reconciliation sheet. The reconciliation sheet, accompanied by the receipts, is then given to the accountant.
9. Every day, the accounting clerk updates the customer accounts assistant by entering the receipts received based on the information and documents received from the receptionist. It also enters into the system the receipts from cash sales made during the day according to the information received from the cashier.
10. Bank deposits are made every day after closing, except for weekends.We therefore make an additional deposit on Monday morning to cover weekend activities. The deposit slip is prepared by the accounting clerk in two copies. The bank stamps the slip as proof of deposit, keeps the first copy with the deposit and returns the second copy to MCM. It is the bookkeeper who goes to the bank with the deposit.
11. At the beginning of each month, the accounting clerk prepares the bank reconciliation for the previous month by reconciling the balance on the bank statement with the balance according to the MCM general ledger. He then submits the conciliation to the chief accountant who examines it and approves it. The latter simply ensures that the reconciliation is added and that the bank's balance is effectively reconciled with that indicated in MCM's books.
12. The accounting clerk carries out the monthly reconciliation of the accounts receivable assistant with the general ledger.
13. Also every month, the accounting clerk produces for the chief accountant and the president of MCM various management reports on the activities of the month which has just ended and the year to date. These reports include an income statement divided into three segments (wood materials, hardware, and others) so that management can assess the profitability of each. An up-to-date report is also presented. The latest report shows a 40% increase in sales since the start of the year compared to the same period the previous year, which delights the president of MCM. As for the balance of customer accounts, it increased by 60% for the same period.

Work to do

1. Prepare the flow chart using the narrative description presented above. (Separate document preferred) (20 points)

2. Following your understanding of the process, identify 5 key controls(the most important in your opinion) of t55he MCM sales, receivables and collections cycle. For each of these controls, identify the risk(or conversely, the assertion) that is addressed by this control. Be specific. (To help you answer, you can refer to the control objectives for this cycle and also use an internal control questionnaire. However, you do not have to submit the questionnaire). (15 points)

3. Identify 3 significant weaknessesin MCM's sales, receivables and collections cycle. (15 points)

*Each weakness must be presented as follows:

Weakness :

Impact or consequence:

Recommendation or suggestion:

4. Action Items - Please propose testing of key controlsfor the MCM Sales, Receivables and Collections cycle. (5 control tests in reference to the controls you identified in point 2) above). What is the purpose of the tests you offer?

(15 points)

5. Action items - also propose two tests of key balances(substantiation processes) in relation to accounts receivable. Make the link between the proposed test and the intended assertion.

(6 points)