Question 2 (6 marks)

Alto Co. Ltd. is a manufacturer and seller, at the wholesale level, of fine furniture. One of its key business processes is the sales/accounts receivable/cash receipts cycle.

Sales managers are paid a commission based on sales for the year.The following scenarios below describe two different aspects of Alto Co.'s operations of this cycle.

1.The retail consumer market for furniture is quite volatile and companies in the retail consumer market can be "here today and gone tomorrow." For that reason Alto is very concerned about selling to bad credit risks. Poor credit control could result in large bad debts. Therefore the sales manager approves every credit sale over $500.He indicates approval by initialling the customer order, which is attached to a copy of the sales invoice and filed by date in the accounting department.

2.Billing clerks use a standardized price list to price goods shipped. The amounts are entered on the three-part invoice. Copy one goes to the customer, copy two is the basis for recording the sales amount and is then filed in the accounts receivable department by date. Copy three is sent to the billing department where it is filed by date.

Required

For each of the two independent scenarios:

1. Identify the weakness in internal control. (2 marks)
2. Discuss the implication ofthe weakness identified in a) ( what could go wrong) (2 marks)
3. Make a recommendation to address the weakness identified in a). (2 marks)