O'Malley Corp $-$ Revenue Cycle

O'Malley Corporation$($OMC$)$ is a midsized, privately owned musical instrument manufacturer supplying

Music Retailers in the Midwest. The corporation is ten years old and uses an old Accounting system,

which may not have adequate controls to prevent, detect or correct errors and fraudulent activity.

Management has determined that they need to start testing its internal controls. In order to test its

controls, management must have a greater understanding of the system and therefore needs

documentation. They are also interested in upgrading their system to a database platform. In your

system design presentation to management, please also identify any internal control and business

process weaknesses that you have identified in their current system. Please also suggest any additional

reports that management might find helpful in controlling costs$/$operations$.$

When a customer places an order, their information is used to update the Customer subsidiary ledger

and create a Sales Order. All sales are on credit. The Sales Order is held in the Open Sales Order file.

During the past year, sales have increased dramatically, but $15\%$ of credit sales had to be written off as

uncollectible, including several large orders to first$-$time customers.

Customer orders are picked by inventory pickers after the Accounting Department pulls the data from

the Sales Order in the Open Sales Order File and verbally tells them what items go into each order. The

items are then packed in boxes and shipped. Once the packages are shipped and the bill of lading is

signed by the Carrier on the date the items are picked up$,$ a copy of the bill of lading is sent to

Accounting to record a Sales journal and generate a Customer Invoice. The Sales Order used to pull the

inventory items, is stapled to a copy of the Customer Invoice and both are stored in the Open Customer

Invoice file. The Sales Order is marked as "Closed" by writing the invoice number at the top. The

Accounting Department then updates the Accounts Receivable Subsidiary Ledger for the amount due.

The original customer invoice is physically mailed to the customer.

Occasionally a Customer will be contacted for not paying on a timely basis, which sometimes results in

angry Customers that claim to have "already paid". Customer checks are received by the Accounts

Receivable Clerk $($in the Accounting Department$),$ the clerk signs the check, posts the amount to a Cash

Receipts Prelist, posts a journal to the Cash Receipts journal, updates the Accounts Receivable

Subsidiary Ledger and then stamps the invoice from the Open Invoice file as "paid" with the check

number. The AR Clerk also prepares the deposit slip for the bank each day.

An AR Aging Report is prepared by the Accounting department and sent to Management semi$-$annually

to determine aged receivables and uncollectible accounts for write$-$offs. There is no evidence that

Management actual reviews the report. CREATE A ENTITY RELATIONSHIP DIAGRAM $($ERD$)$