Describe weaknesses in internal control over information and data flows and the procedures for processing shipping notices and customer invoices, and recommend improvements in these controls and processing procedures.
Lee Wong, CPA, is auditing the financial statements of the Alexandria Corporation, which has a batch-processing IT-based system for shipping and invoicing that it purchased from a software vendor. The following comments have been extracted from Wong’s notes on IT operations and the processing and control of shipping notices and customer invoices.
Each type of computer run is assigned to a specific employee who is responsible for making program changes, running the program, and answering questions. This procedure has the advantage of eliminating the need for records of IT operations because each employee is responsible for his or her own computer runs. At least one IT department employee remains in the computer room during office hours, and only IT department employees have keys to the computer room.
The corporation considered the desirability of program controls but decided to retain the manual controls in place prior to the conversion to the software vendor’s system.
Company products are shipped directly from public warehouses, which forwards shipping notices to general accounting. There a billing clerk enters the price of the item and accounts for the numerical sequence of shipping notices from each warehouse. Mathematical extensions are made by the computer. Output consists of invoices (in six copies) and a daily sales register. The daily sales register shows the aggregate totals of units shipped and unit prices, which the computer operator compares to the control tapes.
All copies of the invoice are returned to the billing clerk. The clerk mails three copies to the customer, forwards one copy to the warehouse, maintains one copy in a numerical file, and retains one copy in an open invoice file that serves as a detailed accounts receivable record.
Describe weaknesses in internal control over information and data flows and the procedures for processing shipping notices and customer invoices, and recommend improvements in these controls and processing procedures.
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