QUESTION 4 (25 MARKS: 45 MINUTES)

Mimasab Enterprise is a company that manufactures and sells high quality frozen food and bakeries. Mr Barkoba, the sales executive, has been with the company since the company was established and has earned the trust of the owner, thus has been given several important tasks in the department. Since Mr Barkoba is the most experienced staff in the company, the owner makes him responsible for both cash and credit sales. Mr Barkoba also bills the customers who purchase on credit, opens the mail and posts to AR records and prepares the daily cash deposits for the business.

Mr Purnama is the factory clerk. When the sales order is received in the factory, Mr Purnama prepares two copies of the production order and one copy of material requisition form. The first copy of the production order is sent to the sales department and filed in the open customer order file. The second copy of the production order form is temporarily filed in the factory. Mr Purnama then forwards the material requisition form and the materials needed from the warehouse to the production. After forwarding the materials, Mr Purnama updates the inventory subsidiary account from his computer.

When Mr Farquhar, the warehouse clerk, receives the goods and the production order form, he packs the goods for shipping. Mr Farquhar then forwards the goods package along with the stock release document to the shipping department. Mr Jabit, the shipping clerk uses the stock release document to prepare three copies of bill of lading. The first two copies of the bill of lading are forwarded along with the goods package to the carrier. The third copy of the bill of lading is sent to the sales department to close the open customer order file.In the accounting department, Miss Flora reviews the remittance advice and the checks, updates the AR subsidiary ledger and records the cash receipt in the cash receipts journal. At the end of the day, Miss Flora updates the AR Control, Cash, and Sales accounts in the general ledger to reflect the day's sales and cash receipts.

REQUIRED:

(a) By using the following format, discuss FIVE (5) physical internal control weaknesses in the sales order and cash receipts systems of Mimasab Enterprise. (10Marks)

(b) For each weakness in (a), suggest ONE (1) recommendation for improvement in the internal control procedures to minimise the risk. (10 Marks)

B. Explain FIVE (5) instances where manual independent verification control should exist in the revenue cycle.