QUESTION 1 Match the control checklist cuestion on the left for each of the four basic activities in the revenue cycle (sales order entry, shipping, billing, and cash collections) to the potential control weakness that could exist if the control is not in place (right column). Is access to master data restricted? Failure to investigate all changes to customer master data may allow fraud to occur because unauthorized changes to credit limits may not be detected. Is the master data regularly reviewed and all changes investigated? b. Not using lockboxes, where feasible, creates delays in receiving customer payments which could result in Is sensitive data encrypted while stored in the database? cash flow problems Does a backup and disaster recovery plan exist? c. If the backup plan is not regularly tested, it may not work. Have backup procedures been tested within the past year? d. Failure to encrypt sensitive data can result in unauthorized disclosure of personal information about customers Are appropriate data entry edit controls used? e. Unrestricted access to master files could facilitate fraud by allowing employees to change account Are digital signatures required for online orders? balances to conceal theft. Are physical counts of inventory taken regularly and used to adjust the perpetual Inventory records? f. Without periodic physical counts, the perpetual inventory records are likely to be incorrect, creating problems in filling customer orders on time Are the credit approval and sales order entry tasks performed by separate individuals? g. Without proper data entry edit controls, errors in sales order entry may cocur resulting in shipments that Are picking list quantities compared to sales orders? are not billed, sending the wrong items, etc. Is physical access to inventory controlled? h. Not mailing monthly stalements to customers increases the risk of nol delecting errors or fraud in maintaining accounts receivable Are reports of open sales orders regularly created and reviewed? i. Without a digital signature, orders may be processed and sent that the customer later refuses, resulting in Are shipping documents reconciled with sales orders? Increased costs Are the shipping and billing functions performed by different individuals? 1. Failure to compare shipping documents to sales orders may result in errors in filling customer orders Are monthly statements mailed to customers? k. If a backup and disaster recovery plan does not exist, the organization may suffer loss of important data Are the functions of processing customer payments and maintaining accounts receivable performed 1. If the same individual approves changes in credit and takes customer orders, they can increase credit by separate individuals? limits for friends, which may result in sales that are not collected. Is the bank account reconciled by someone other than the person who processes customer m. If physical access to inventory is not restricted, theft may occur. payments? n. If credit limits are set by someone with sales responsibility, that person may be tempted to grant credit to Are lockbox arrangements used? customers to maximize sales and thereby commissions or bonuses earned) without regard to the risk of having to write off the sales as uncollectible. Are customer credit limits sel and modified by a credil manager with no sales responsibility? o. Failure to monitor sales orders may result in delays in filling customer orders p. Not segregating handling of customer payments and maintenance of accounts receivable creates the possibility of lapping q. Not comparing picking lists to sales orders can result in shipping the wrong merchandise or the wrong quantities to customers. r. If the bank account is reconciled by the same person who processes customer payments, theft can coour and be covered up by adjusting the bank balance on the bank reconciliation s. Not segregating the billing and shipping functions increases the risk of deliberately not billing for shipments 9 QUESTION 1 Match the control checklist cuestion on the left for each of the four basic activities in the revenue cycle (sales order entry, shipping, billing, and cash collections) to the potential control weakness that could exist if the control is not in place (right column). Is access to master data restricted? Failure to investigate all changes to customer master data may allow fraud to occur because unauthorized changes to credit limits may not be detected. Is the master data regularly reviewed and all changes investigated? b. Not using lockboxes, where feasible, creates delays in receiving customer payments which could result in Is sensitive data encrypted while stored in the database? cash flow problems Does a backup and disaster recovery plan exist? c. If the backup plan is not regularly tested, it may not work. Have backup procedures been tested within the past year? d. Failure to encrypt sensitive data can result in unauthorized disclosure of personal information about customers Are appropriate data entry edit controls used? e. Unrestricted access to master files could facilitate fraud by allowing employees to change account Are digital signatures required for online orders? balances to conceal theft. Are physical counts of inventory taken regularly and used to adjust the perpetual Inventory records? f. Without periodic physical counts, the perpetual inventory records are likely to be incorrect, creating problems in filling customer orders on time Are the credit approval and sales order entry tasks performed by separate individuals? g. Without proper data entry edit controls, errors in sales order entry may cocur resulting in shipments that Are picking list quantities compared to sales orders? are not billed, sending the wrong items, etc. Is physical access to inventory controlled? h. Not mailing monthly stalements to customers increases the risk of nol delecting errors or fraud in maintaining accounts receivable Are reports of open sales orders regularly created and reviewed? i. Without a digital signature, orders may be processed and sent that the customer later refuses, resulting in Are shipping documents reconciled with sales orders? Increased costs Are the shipping and billing functions performed by different individuals? 1. Failure to compare shipping documents to sales orders may result in errors in filling customer orders Are monthly statements mailed to customers? k. If a backup and disaster recovery plan does not exist, the organization may suffer loss of important data Are the functions of processing customer payments and maintaining accounts receivable performed 1. If the same individual approves changes in credit and takes customer orders, they can increase credit by separate individuals? limits for friends, which may result in sales that are not collected. Is the bank account reconciled by someone other than the person who processes customer m. If physical access to inventory is not restricted, theft may occur. payments? n. If credit limits are set by someone with sales responsibility, that person may be tempted to grant credit to Are lockbox arrangements used? customers to maximize sales and thereby commissions or bonuses earned) without regard to the risk of having to write off the sales as uncollectible. Are customer credit limits sel and modified by a credil manager with no sales responsibility? o. Failure to monitor sales orders may result in delays in filling customer orders p. Not segregating handling of customer payments and maintenance of accounts receivable creates the possibility of lapping q. Not comparing picking lists to sales orders can result in shipping the wrong merchandise or the wrong quantities to customers. r. If the bank account is reconciled by the same person who processes customer payments, theft can coour and be covered up by adjusting the bank balance on the bank reconciliation s. Not segregating the billing and shipping functions increases the risk of deliberately not billing for shipments 9