Sales Order Processing Procedures of High Aims Limited

Mr Jack is an experienced sales clerk working in the sales department of High Aims Limited for the last ten years. Mr Jack receives the sales order via mail, e-mail or fax from a wide range of diversified customers. Mr Jack first converts the unstandardised sales order into the standardised sales order.1 For this purpose, Mr Jack requests the missing information, if any. When the order is received, the sales clerk checks the customer's creditworthiness from his computer terminal. Five years ago, Mr Jack requested the accounting department to provide him with account receivable subsidiary ledgers. Mr Jack is not a qualified accountant. However, he uses this accounting information to check the customer's creditworthiness. Further, Mr Jack is using the same procedure to check the creditworthiness of the new customers. Miss Olivia discussed this issue with Mr Jack last week and was concerned about this procedure. However, Mr Jack explained to her that we have been doing this for the past ten years. Mr Jack rejects the customer's order if the customer's credit is not verified. The sales order processing is started after the credit verification. In particular, Mr Jack records the approved standardised sales order in the sales order system through his computer terminal. [Recall Figure 4.15 from our discussion during the weekly interactive tutorial.]

A digital copy of the order is distributed to the warehouse and the shipping department terminals for further processing. The computer system automatically records the sale in the sales journal. The clerk reviews this entry and files the hard copy of the customer order in the sales department. As indicated above, the receipt of the digital sales order prompts on the computer terminal of the warehouse manager. Further, the stock release and the shipping notice are also accessible at the warehouse terminal. The warehouse manager prints out the following three documents: 1. The sales order, 2. The stock release, and 3. The shipping notice. These copies are used for further processing. Using the stock release copy, a warehouse clerk picks the selected items from the shelves and sends them to the shipping department along with the stock release and the shipping notice. The warehouse manager then updates the inventory subsidiary ledger and the general ledger control account from his computer terminal. Miss Olivia is specifically concerned about the fact that the warehouse manager updates the inventory subsidiary ledger and the general ledger control account from his computer terminal. The warehouse manager forwards the physical stock, the stock release, and the shipping notice to the shipping clerk. After receiving these documents, the shipping clerk matches them to his terminal's corresponding digital sales order. If everything matches, he prints out three hard copies of the bill of lading and a packing slip. The shipping clerk sends two copies of the bill of lading and the packing slip, along with the goods, to the carrier. The stock release copy and the shipping notice are sent to the accounts receivable department. The third bill of lading copy is filed in the shipping department. The shipping clerk forwards the stock release and shipping notice to the account receivable clerk. Then, the accounts receivable clerk manually creates a hard-copy invoice, which is immediately mailed to the customer. After mailing the invoice, the clerk uses information on the stock release to update the accounts receivable subsidiary ledger and general ledger from his computer terminal. After the records are updated, the clerk files the stock release and shipping notice in the accounts receivable department. Sometimes, the account receivable clerk reconciles the quantities from the sales order and adjusts the account receivables.

Cash Receipts Procedures of High Aims Limited

Customers' payments come directly to the general mailroom along with other mail items. The mail clerk performs the following tasks: (1) sorts the mail, (2) opens the customer payment envelope, (3) removes the customer's check and remittance advice, and (4) reconciles the two documents. The clerk manually prepares two hard copies of a remittance list to control the checks and remittance advice. He sends one copy to the accounts receivable department and the corresponding remittance advice. The other copy of the remittance list accompanies the checks to the cash receipts department. Once the checks and remittance list arrive in the cash receipts department, the treasurer performs the following tasks: (1) reconciles the documents, (2) endorses the checks, (3) manually prepares three hard copies of a deposit slip, (4) updates the cash receipts journal and the general ledger from his computer terminal, (5) sends the checks, and two copies of the deposit slip to the bank, and (6) files the third copy of the deposit slip and the remittance in the department. The accounts receivable clerk receives the remittance list and remittance advice from the mailroom and reconciles these two documents. He then updates the accounts receivable subsidiary ledger and the general ledger. Then, the account receivable files the two documents in the department.

Required: Based on the above information, pre pare a report for Miss Olivia by evaluating the revenue cycle of High Aims Limited. In your report, you need to include the following items:

1. Miss Olivia is specifically concerned that the warehouse manager updates the inventory subsidiary ledger and the general ledger control account from his computer terminal. We have discussed similar case studies in week 3. Please relate these tasks of the warehouse manager with our discussion of the case studies in week 3 (Week 3 Interactive Tutorial).

2. Considering Miss Olivia's concerns, identify potential internal control weaknesses in the revenue cycle of High Aims Limited.

3. Discuss the potential risks associated with the revenue cycle of High Aims Limited. Your discussion should be consistent with the internal control weaknesses identified in 2 above.

4. Based on Section (3) above, what types of fraud are possible?

5. At last, a conclusion