QUESTION FOUR

You are the audit supervisor of the audit firm, Mavis & Mavis, and you have been asked to review the internal control system of Salford Ltd (Salford). Salford supplies a complete line of mixes, bases, icings, glazes, fillings, frozen dough and fully baked products and equipment to food industry customers around the South East of England.

Sales ordering

Some customers take daily supplies and some take supplies once a week. Each customer is identified only by its trading name and the sales order clerks use this to raise sales orders. Sales orders to existing customer are automatically generated until the customer cancels them in writing. The sales representatives telephone new orders secured on their runs to the sales order clerks.

Telephone orders placed by new customers are entered on pre-numbered sales order forms by any one of the five sales order clerks who receives the call. The sales order forms are batched and sent at the end of the day to the stores department, for the items to be despatched to customers the following morning. A copy of the sales order form is sent to the accounts department. Staff turnover is very low and the sales order clerks and sales representatives are all long-serving employees who know the companys products and can remember the prices from memory.

Individual customers make payment in advance at the time of placing orders by phone. Business customers are usually given 30 days credit.

Despatch of goods

Upon receipt of the sales orders at the stores department, sequentially numbered goods despatch notes (GDNs) are automatically generated. A two-part copy of the GDN accompanies the goods and one copy is expected to be signed by the customer on receipt of the goods.

Invoicing, ledger entry and customer statements

A copy of the sales order is used to raise a sales invoice by the sales ledger clerks at the Accounts department. Sales invoices are batched and input by the sales ledger clerks every two weeks. Emily, the Accounting Assistant is responsible for depositing receipts, filing remittance advices and posting receipts in the individual customer accounts and the general ledger accounts. The sales ledger and general ledger are automatically updated every two weeks. Emily also prepares and controls the mailing of monthly statements to customers.

REQUIRED:

Identify and explain FIVE (5) control weaknesses identified in the sales system of Salford and suggest improvements you would advise to overcome each identified weakness.

Answers should cite relevant standards and provide examples, where appropriate