Question 13 Section C: Short answer questions / Risk and Control

Strides for Strides manufactures and sells athletic wear to retail stores, who then stock the goods and sell them to customers. Its range of products includes warm-up tracksuits, body suits and running shoes and spikes. The business process followed by Strides for Strides in supplying retail stores is as follows:

The retail store will send an order to Strides for Strides, where it will be received by the customer service representative. Orders are generated by and originate from the retail stores and can come at an ad hoc and irregular basis. Retail stores, while all being long-standing and regular customers, have typically ordered at the last minute, resulting in irregular demand levels across the year. Two copies of the order form are made, with one being sent to the warehouse assistant, who checks that all goods are available for dispatch to the retail store. The second copy goes to the accounts receivable office.

Once confirmed as available, the goods are packed, manually recorded on the goods release form (two copies are prepared) and sent to the shipping department for dispatch. A courier collects goods and a goods release form every morning and afternoon and delivers these to the retail store. Once delivery details are confirmed, an invoice is prepared by accounts payable, based on the details in the customer order and the goods release form. Paper invoices are sent out at the end of each week. Retail stores currently have standard payment terms of 2/15, n/35. Payment is made in the form of a cheque, which is sent back to the customer service representative who forwards it on to the accounts receivable office. Strides for Strides has recently noticed that it is having inventory management problem due to the spasmodic and irregular nature of orders. This has impacted on its own ability to meet customer demands. It is also concerned that incorrect quantities of goods may be packed and shipped, and not detected until the goods reach the retail stores. This introduces extra costs of handling returns and allowances. Strides for Strides has also noticed that its accounts receivable turnover has dropped from 11.7 times per year to 9.5 times per year over the last twelve months.

An independent consultant has suggested that by re-engineering the process these problems could be addressed.

Source: Considine, B., Parkes, A., Olesen, K., Blount, Y., & Speer, D. (2010). Accounting Information Systems Understanding Business Processes.4th Edition. John Wiley & Sons Australia.___________

Question. Name four (4) possible risks in the above case and suggest appropriate controls to avoid the each risk.