Sarboxs revenue recognition policy requires that all non-routine sales (i.e. sales to clients other than dealerships) receive authorization from management in order to verify proper pricing and terms of sale. However, after examining a sample of non-routine sales records you find that this control is not closely adhered to and that sales representatives offered discounts or altered sales terms that were not properly recorded in Sarboxs records. As a result, in instances when the control is not followed the recorded sales prices tend to be too high and/or terms are not correctly reflected in the sales invoice and the customers complain. In some situations, customers have canceled orders due to over-billing or changed sales terms. Non-routine sales represent about 10% of Sarboxs sales revenue. From your sample testing of the authorization control, you find that the control doesnt operate 4% of the time, with an upper bound of 9% (i.e., based on your sample, you can be 95% confident that the exception rate does not exceed 9%).

Using Delmoss Watergrants policy for evaluating control deficiencies (See Appendix B), determine if the above deficiency represents a control deficiency, a significant deficiency, or a material weakness. Please justify your answer.