SCENARIO - BASED QUESTION

Daybreak Company supplies a wide range of garden and agricultural products to trade and domestic customers. The company has 11 divisions, with each division specializing in the sale of specific products; for example, seeds, garden furniture and agricultural fertilizers. The company has an internal audit department which provides and reports to the audit committee on each division on a rotational basis.

Products in the seed division are offered for sale to domestic customers via an Internet site. Customers review the product list on the Internet and place orders for packets of seeds using specific product codes, along with their credit card details, onto Daybreak's secure server. Order quantities are normally between one and three packets for each type of seed. Order details are transferred manually onto the company's internal inventory control and sales system, and a two-part packing list in the printed in the seed warehouse. Each order and packing list is given a random alphabetical code based on the name of the employee inputting the order, the date, and the products being ordered.

In the seed warehouse, the packets of seeds for each order are taken from specific bins and dispatched to the customer with one copy of the packing list. The second copy of the packing list is sent to the accounts department where the inventory and sales computer is update to show that the order has been dispatched. The customer's credit card is then charged by the inventory control and sales computer. Bad debts in the company are currently 3% of total sales.

Finally, the computer system checks that for each charge made to a customer's credit account, the order details are on file to prove that the charge was made correctly. The order file is marked as completed, conforming that the order has been dispatched and payment obtained.

Required:

1. Control activities are detailed policies and procedures that management establishes to help ensure that its directives are carried out. List the four different categories of control activities and give an example of each.

2. In respect of sales in the seeds division of Daybreak:

a.Identify and explain 4 weaknesses in that system

b.Outline and explain the possible effect of each weakness