Read the Bradmark Case located in the ?Bradmark Case Description? folder and answer the following questions:

1) From the case description and the associated flowcharts, assess Bradmark?s internal controls over its revenue cycle procedures, with respect to three issues pertaining to transaction authorizations and segregation of duties.

2)From the case description and the associated flowcharts, assess Bradmark?s internal controls over its expenditure cycle procedures. (again, there are three issues ? related to transaction authorization, segregation of duties and accounting records)

Bradmark Wholesale General Supply An ACL Case Study Bradmark is a wholesale general supply company that ships to business customers throughout Northeast Pennsylvania, New York state, and Southern Connecticut. Bradmark has developed a competitive edge by offering a wide variety of quality products at competitive prices. The company's products range from paint to watering cans. Bradmark is a publicly owned company, whose board of directors has retained your firm to conduct the annual audit. You are the in-charge auditor who is currently examining Bradmark's revenue and expenditures procedures and related accounts. Bradmark's main offices are in its Allentown, PA warehouse. The following describes your client's system configuration and business procedures. System Overview and Background Bradmark's information system is a recently purchased application that runs on a clientserver network configuration. James Walker, a systems designer in Bradmark's IT department, played a central role in implementing and modifying the system to meet Bradmark's specific needs. Because of Walker's familiarity with the system, he was asked by top management to temporarily oversee the initial running of the new system to ensure a smooth transition from the old legacy system. After several months, James Walker was offered a promotion to Warehouse Manager and given permanent responsibility for product purchasing. Sales and Cash Receipts Procedures The flowchart in Figure 1 and the record layout in Figure 2 (see the related PowerPoint file for figures) illustrate Bradmark's sales and cash receipts procedures. Sales Department Customer orders are received by mail or fax in the sales department. One of the sales staff accesses the customer record and reviews the available credit before creating a Sales Invoice record. For customers with insufficient available credit, the clerk submits the order to the credit manager for approval. If granted, the credit manager verbally authorizes the clerk to increase the customer's line of credit accordingly. For approved sales, a record is added to the Sales Invoice file. The system automatically assigns an Invoice Number, which is the primary key for the record. The clerk manually enters the remainder of the order data. Warehouse Based on input from the sales invoice, the warehouse terminal automatically prints a stock release document, which the warehouse staff uses for picking the goods. The goods are sent to the Shipping Department along with the stock release document. Once the goods have left the warehouse, the clerk confirms to the system the quantity sold and it automatically updates the Quantity on Hand field in the respective inventory record. Shipping Department The shipping department receives the goods, prepares them for shipment, selects a carrier and prepares the packing slip and bill of lading (BOL). Once the goods are shipped, the clerk adds a record of the shipment to the Shipping Log file. Billing At the end of the day the system automatically searches the Sales Invoice and Shipping Log files for items shipped and prepares a hard copy customer invoice, which is mailed to the customer the following morning. The current date is then placed in the Due Date field of the Sales Invoice file. Cash Receipts Mary, the cash receipts clerk, receives the customer checks and remittance advises directly from the customer. She records this transaction by entering the Invoice Number (taken from the remittance advice) into the system. The system automatically creates a Cash Receipts record. It assigns a Remittance Number as the primary key and adds this number to a field in the related Sales Invoice record. The Invoice Number from the Sales Invoice is also added to the remittance record as a reference. Mary then manually adds the customer number, amount, and payment date to the Cash Receipts record. At the end of the day she prepares a deposit slip and sends the checks to the bank. She files the remittance advice in her office. Purchasing/Payment Procedures The flowchart in Figure 3 and the file structure diagram in Figure 4 illustrate the purchasing/payment procedures at the central warehouse. Warehouse Each morning Walker reviews an automatically generated inventory status report from his office terminal. He determines the items that need replenishing and selects suppliers from the Vendor file. Walker then adds a record to the purchase order file. The system assigns each new record a unique number (PO Number) as the primary key. Walker manually enters the date, the product to be ordered, order quantity, expected unit cost (the extended cost is automatically calculated by the system), and the ID number of the selected vendor. The purchase orders are then printed on Walker's terminal, signed by him, and mailed by his secretary to the respective suppliers. Receiving When the products are received at the receiving dock, a receiving clerk counts and inspects them. The clerk adds a record to the Receiving Report file from the terminal in the receiving area. The system assigns a unique key (RR Num) to each record. The clerk manually enters the purchase order number, product number(s), quantity received, vendor ID number, and the date of receipt. The receiving system is not particularly user friendly. If errors are made during data entry, the clerk must void the receiving report and begin over with a new receiving report record. The voided record is then automatically purged from the Receiving Report file and the system assigns the next RR Number in sequence to the revised receiving report. As a result, sequence gaps exist in the receiving report file indicating the missing records. The products are then sent to the warehouse where they are secured. At the end of the work shift, the receiving clerk prints a hard copy of the receiving report listing of the day's receipts (including any voided receiving reports), which is sent to James Walker's office for his review. Warehouse After Mr. Walker has reviewed the receipts he manually adds the system-assigned RR Number to the corresponding Purchase Order record to indicate that the product has been received. The system automatically updates the Quantity on Hand field in the Inventory file from the Quantity field in the Purchase Order record. Accounts Payable Sybil Johnson, the Accounts Payable clerk, receives the vendor's invoices. Using the PO number from the invoice as a search key, she matches the invoice with the corresponding purchase order/payment record. She verifies that the items invoiced have been received by observing that a RR Number has been placed in the Purchase Order record. She then adds a record to the Voucher Payable file. The system assigns a unique key (Voucher Number) to each record. Sybil enters manually the following data directly from the supplier's invoice: purchase order number, vendor number, supplier invoice number, full amount due, discounted amount due, and due date. The due date is selected to take advantage of purchase discounts. Finally, Sybil files the vendors invoice in her office filing cabinet. Cash Disbursements Each day, Sean O'Connell in the Cash Disbursements department reviews the Voucher Payable file for items due to be paid that day. For each item due, he adds a record to the Check Register file. The system assigns it a unique key (Chk Number) and Sean manually adds the following data to the Check Register record: voucher number, vendor number, amount of payment, and date. The system automatically places the check number in the appropriate Voucher Payable record to indicate that payment has been made. The checks are printed in Sean's office and then reviewed and signed by Irving Stern, the department manager. General Requirements Go to the Bradmark Case Questions folder and select the appropriate questions for the chapter you are working with--Revenue Cycle (Chapter 9), Expenditure Cycle (Chapter 10), or Fraud Issues (Chapter 12). This case requires that you install ACL Desktop Edition (full educational version) that came with new copies of the textbook on your computer. The data for the ACL portion of the case questions are located in the Bradmark Data folder