Science is Us (the Company) is a mid-sized, privately held, high tech, startup company which has developed a proprietary combustion engine which can be fueled with ordinary water when a proprietary supplement has been added. The concept has been tested, patented and demonstrated at various trade shows around the world. In addition to the US & Europe, interest has been especially strong from China to the point of offering a billion dollars to buy the Company. The Company has repeatedly declined any purchase offers and intends to go public through an IPO. Subsequent to the recent trade show in China, the Company has also noticed an especially strong inquiry response including telephone calls and emails asking for more information about the Company, its products and its employees. The Company is disappointed in that a significant number of calls go unanswered as they were answered by the automated telephone system after hours when no employees were around and a call back number / message was not left. Sales are expected to grow very significantly for a lengthy period of years which will require the Company to immediately expand operations hence the IPO. They currently have 20 employees, including manufacturing, sales, back office staff and Corporate. The original engineer who designed the engine serves as the CEO and sets the overall strategic vision for the Company and makes all of the significant decisions. The Company has a mid-range computer system for all major functions including: sales, purchases, payments, payroll and fixed asset accounting. The computer has recently experienced some slow processing times which the Company has attributed to increased sales & trade show activity. The internal financial statements are pulled together utilizing an Excel based platform. There are obvious concerns regarding the computer systems ability to process transactions with the Companys growth. While current sales have been minimal due to production constraints, the Company believes that its sales accounting processes have been working quite well and therefore does not view it as an immediate area of concern. Below is a detail explanation of how the Order to Pay / Revenue Cycle business process is conducted.

Order Entry: The process for submitting orders starts with the sales requests being forwarded to the General Accountant for approval that the product can be produced and shipped. Sales requests are received from customers and entered into the system and used to generate a quote and ultimately create a sales order (SO). Appropriate data that is entered includes general product information, customer data, a shipping address, the date the order is expected, etc. After the SO is approved by the Controller, orders are ready to be produced. All supporting documentation is then retained in the customer folder.

Initial Credit/Credit Review: The Company does not formally maintain either a policy or a list of active credit limits for customers. However when appropriate, D&B reports are run on customers to ensure that they are worthy of credit. The reason that a more formal process is not in place is largely due to having a relatively small number of customers and the due to the fact that most customers are significantly high profile customers with sound credit.

Invoicing: The computer system generates invoices from the packing list after an order is received, processed and ultimately shipped. Some customers are able to be invoiced electronically which does not require a hard copy invoice to be mailed while other customers require hard copy invoices. In order to generate invoices, packing lists for the day are sent to the General Accountant for processing. After the invoices are printed, the General Accountant ensures that each invoice is matched to the appropriate packing list and the customer is sent an invoice as appropriate. Invoices are recorded in the system the day the order is packaged/shipped.

Revenue Recognition: As previously noted invoices are created when orders are packed for a customer and shipped making revenue recognition at the Shipping Point. It is the Companys unwritten policy to recognize all revenue based upon the shipping terms since transfer of control occurs at that time as the risk of loss and rewards of ownership have passed to the customer. Recording revenue at the point of shipment is appropriate because it is agreed with the customer that the title of the goods changes hand when they are shipped and further supported because customers largely take responsibility for shipping

Accounts Receivable (AR) Aging Review: On a quarterly basis, the General Accountant generates a detailed AR Aging report for review that identifies all AR outstanding by invoice listed alphabetically by Entity Name. The General Accountant sends this report to the Controller who reviews the report such that they can follow up as appropriate with slow paying customers. Selected information contained within the report includes customer information such as the Entity # and name, detailed invoice information as well as the dollar value outstanding at 30 day intervals until reaching an outstanding period of greater than 121 days past due. The General Accountant tries to resolve all items on the report greater than 91 days past due although not formally required to do so by any Policy or procedures. In addition to review of the AR Aging report, the Controller makes the calculation at the end of each year and books the entry which establishes the Allowance for Doubtful Account reserve.

Application of Customer Payments: As customer payments are received the General Accountant manually records each check received into a self-maintained register and begins to match the checks to the appropriate customer invoice which are stored in a single Open Invoice drawer near the finance area. After the checks are matched, the General Accountant uses a scanning system provided by the bank in order to deposit the checks into the bank account. After depositing the checks via the scan, the checks are applied to customer accounts by the General Accountant. Due to the low volume of payments, a batch summary value is not compared to the sum of all payments applied by the General Accountant before the payments are processed within the system and the process is complete. For retention purposes, the invoices and any appropriate support are then stored in a customer payment file near the finance area and the physical checks that have been scanned for deposit are retained with the appropriate months bank statement.

Case Study Questions which require attention within your submission:

1. Utilizing the COSO methodology of an effective system of internal control:

a. Perform an assessment based on the facts provided (or conspicuous by their omission) and

summarize risks within the Order to Pay / Revenue Cycle business process;

b. Summarize significant opportunities (controls) for improvement in the Order to Pay /

Revenue Cycle business process which you have identified, categorized by the Control

Environment, Risk Assessment, Control Activities, Information & Communication and Monitoring

COSO control components. These recommendations can include both manual and automated

enhancements.

c. When listing the risks and recommendations (1 a and 1 b), present the assessment in order of

significance to assist management with where to focus their efforts.