Question 6

You are a member of the recently formed internal audit department of Hauz of Spinach. The company manufactures tinned vegetables which are supplied to hypermarkets. The management is concerned about the effectiveness of their sales and despatch system and have asked internal audit to document and review the system.

Sales orders are mainly placed through Hauz of Spinachs website but some are made via telephone. Online orders are automatically checked against inventory records for availability; telephone orders, however, are checked manually by order clerks after the call. A follow-up call is usually made to customers if there is insufficient inventory. When taking telephone orders, clerks note down the details on plain paper and afterwards they complete a three-part pre-printed order form. These order forms are NOT sequentially numbered and are sent manually to both despatch and the accounts department.

As the company is expanding, customers are able to place online orders which will exceed their agreed credit limit by 10%. Online orders are automatically forwarded to the despatch and accounts department.

A daily pick list is printed by the despatch department and this is used by the warehouse team to despatch goods. The goods are accompanied by a despatch note and all customers are required to sign a copy of this. On return, the signed despatch notes are given to the warehouse team to file.

The sales quantities are entered from the despatch notes and the authorised sales prices are generated by the invoicing system. If a discount has been given, this has to be manually entered by the sales clerk on the invoice. Due to the expansion of the company, and as there are large number of sale invoices, extra accounts staff have been asked to help out temporarily with producing the sales invoices. Normally it is only two sales clerks who produce the sales invoices.

Required: a) Describe how the auditor documents the sales and despatch system for his audit file [15 marks]