Sales Order

To understand this procedure, your team first met with Azalina, the sales officer. She first explained the nature of SESB sales operation. The sales are made to the resellers that have registered with SESB. Each reseller receives a pre-numbered purchase order booklet from SESB office upon its registration. Periodically, the reseller completes the purchase order form for reordering purpose. The reseller specifies the description of the ordered products and the quantity, respectively. The purchase order form is faxed/e-mailed to SESB's head office for processing. The reseller may also bring the purchase order form directly to the head office for ordering purpose.

Your team further asked about the process of handling the customer's order. The following description was provided by Azalina:

As a sales officer, she is responsible to review and to approve the order made by a reseller. Upon receiving the pre-printed purchase order copy from the reseller, she then checks the reseller's account status by referring to the customer's weekly s file. The accounts unit prepares the customer account's summary report weekly for the sales officer reference. Based on the customer's account record, she approves the reseller's order and transfers the order details into the sales order form (prepared in duplicate carbon copies). She then forwards the original sales order copy to a store executive. Meanwhile, the second and third sales order copies is filed together with the pre-printed purchase order by the reseller's name. In case of the customer exceeds its credit limit, Azlina remarks the customer's order as 'on hold' and files the customer's purchase order copy into 'Waiting Customer's Order' file. She then notifies the customer to clear the pending payment before the order being processed.

Your team then met Selamat, the warehouse executive who is responsible for managing inventory and delivery related tasks. As he mentioned, he has two operation employees to help him in his unit. As your team observed, the storeroom area is securely locked and only accessible by the authorised employees. You also noticed that the 2,000 square feet storage area is also equipped with the fire extinguishers and smoke detectors.

When requested to elaborate further on his responsibilities, he described as follows:

Upon receiving the reseller's sales order details, he first checks the inventory card for the current inventory balances. If all the ordered products are available, he then requests the operation employee to pick up the ordered goods from the warehouse shelves based on the verified sales order copy. He then instructs the operation employee to complete a duplicate copy of the delivery note by specifying the sales order details and the delivery agent. The employee also attaches the sales order copy to the packaging. The packed order is kept in the collection area while waiting for the delivery.

Selamat's description of the existing delivery procedures are summarised as below:

The appointed delivery agent comes to the head office two times a week to collect the packed goods and deliver to the respective reseller. The agent picks up the packed inventories from the operation employee and signs on the delivery note prepared earlier. While the delivery agent retains the second copy of the delivery notes, the operation employee provides the original copy of an annotated delivery note to Selamat for recording purpose. He is responsible to update the respective inventory cards based on the number of units delivered. He then signs the completed delivery note and forwards it to the accounting officer.

Accounts Payable and Cash Disbursement

Lissa describes as follows of how she handles the cash payment to the SESB's vendors, specifically on the purchase of inventories.

Upon receiving the purchase order copy, Lissa temporarily files the purchase order (by supplier name) in 'Incoming Supplier's Invoice' while waiting for the invoice to arrive from the vendor. When the vendor's invoice arrives, she takes out the respective purchase order copy that matches the vendor's invoice. The supplier invoice details are reconciled with the respective purchase order.

Lissa gets into SESB's accounting system and records the vendor's invoice by keying-in the reseller's ID. A computer program then reads the vendor's master file and displays the vendor's details on screen. She then records the vendor's invoice details onto the system. A next computer program edits and checks the invoice details entered for possible data entry errors. Upon saving the transaction, the computer program records the transaction into the purchase file and updates the respective vendor's file and subsequently the general ledger master file. She then prints the accounts payable summary and files together with the purchase order copy and vendor's invoice by the invoice's due date into an 'Open Invoice' file.

When asked about the payment procedures, Lissa elaborated as below:

On every Monday, she checks on the 'invoice for payment file' for any outstanding invoices that are becoming due within that week. For all invoices becoming due, she takes out the invoices with the attached purchase order copy and enters the vendor's details into the SESB's accounting system (account payable cash payment module). Upon entering the vendor's details, a computer program retrieves the respective vendor's record from the vendor's master file and displays all pending invoices on screen. She then chooses the invoices for payment and records the payment details. The computer program records the transactions into a cash disbursement file and creates a payment voucher register file. Consequently, the computer program updates the vendor's master file and general ledger master file for all transactions entered.

Next, she prints a payment voucher for the respective invoices due for payment. She later forwards the payment vouchers to Jason, the account manager for payment processing. The account manager makes a payment using online banking to the respective vendors as per the payment voucher. The payment slip is then given back to her for filing purpose. Finally, she attaches the purchase order, vendor's invoice, payment voucher and the payment slip into the 'Paid Invoice' file based on the payment date.

When asked for any specific reports prepared at the end of each month, Lissa indicated that she produces a report from SESB accounting system comprising of purchase summary, accounts payable summary, and total cash disbursement of the month. The reports are forwarded to the general manager.

THE QUESTIONS ARE :

(a)Assess at least THREE (3) possible strengths of internal control procedures that are present in the SESB Sdn Bhd's. Provide your justification as to why each of the strengths identified is essential for an effective internal control procedure.

(b)Identify FOUR (4) possible weaknesses in the SESB's procedures. Provide an appropriate argument to support each of the weaknesses highlighted.

(c)Describe at least ONE (1) risk exposure that might have resulted from each of the internal control weakness identified in (c).

(d)Suggest and explain appropriate internal control procedure to rectify each of the weakness identified in (c).

(PLEASE ANSWER WITH EXPLANATION IN DETAIL)