The Never Sink Canoe (NSC) Company is a smallmanufacturer of high-quality canoes, pontoons, andfishing craft. It sells its products to sporting goodstores throughout the northeast United States andparts of Canada. NSC began as a small familyownedcompany that served a local market. Overthe years, it expanded its market through the useof seasonal sales force employees. The sales staffwork on straight commission and travel extensivelywhile taking orders from customers at sportingoutlets and trade shows during the water sportsand fishing season. All sales are on credit and paymentis due within 30 days after being billed. In latefall when the season ends, the temporary sales personnelare laid off until the following spring.Employee turnover is high with approximately 50percent of the laid-off sales staff returning the followingyear.NSC’s revenue and expense procedures associatedwith its sales force activities are as follows:The salesperson takes an order, reviews the customer’screditworthiness, and submits the approvedorder to the accounting clerk at the main officewho calculates the sales commission to be remittedand promptly writes a check to the salesperson. Theclerk then sets up an accounts receivable for the customer.The clerk also receives cash in payment ofcustomer accounts and updates the related customerAR records.The order is then sent to the billing department,where the sale is recorded and the customer is billed.Finally, the order is sent to the warehouse where theitems are selected, packaged, and shipped to the customer.The warehouse clerk then updates the inventorysubsidiary ledger to reflect the shipment.Sales staff periodically submit travel expensereimbursement claims on hard-copy forms to theaccounting clerk. NSC policy requires sales staff tokeep receipts, but they are not required to submitthem with the reimbursement forms. The clerk preparesan account payable for each salesperson basedon their reimbursement form and twice each monthwrites checks for them for the amount indicated intheir individual AP account.After the end of the past season, and after thetemporary employees had been laid off, NSC financialsshowed a substantial rise in sales compared toprevious years. These increases were, however, offsetto a great extent by a high rate of product returns.Furthermore, travel expenses were disproportionatelyhigh compared with previous years.Requireda. Using the COSO internal control model for controlactivities (e.g., transaction authorization, andsegregation of duties), identify any potentialinternal control weaknesses in the NSC system.b. For each weakness, discuss the potential forfraud in the system.c. Make recommendations for correcting each identifiedcontrol weakness.

The Never Sink Canoe (NSC) Company is a smallmanufacturer of high-quality canoes, pontoons, andfishing craft. It sells its products to sporting goodstores throughout the northeast United States andparts of Canada. NSC began as a small familyownedcompany that served a local market. Overthe years, it expanded its market through the useof seasonal sales force employees. The sales staffwork on straight commission and travel extensivelywhile taking orders from customers at sportingoutlets and trade shows during the water sportsand fishing season. All sales are on credit and paymentis due within 30 days after being billed. In latefall when the season ends, the temporary sales personnelare laid off until the following spring.Employee turnover is high with approximately 50percent of the laid-off sales staff returning the followingyear.NSC’s revenue and expense procedures associatedwith its sales force activities are as follows:The salesperson takes an order, reviews the customer’screditworthiness, and submits the approvedorder to the accounting clerk at the main officewho calculates the sales commission to be remittedand promptly writes a check to the salesperson. Theclerk then sets up an accounts receivable for the customer.The clerk also receives cash in payment ofcustomer accounts and updates the related customerAR records.The order is then sent to the billing department,where the sale is recorded and the customer is billed.Finally, the order is sent to the warehouse where theitems are selected, packaged, and shipped to the customer.The warehouse clerk then updates the inventorysubsidiary ledger to reflect the shipment.Sales staff periodically submit travel expensereimbursement claims on hard-copy forms to theaccounting clerk. NSC policy requires sales staff tokeep receipts, but they are not required to submitthem with the reimbursement forms. The clerk preparesan account payable for each salesperson basedon their reimbursement form and twice each monthwrites checks for them for the amount indicated intheir individual AP account.After the end of the past season, and after thetemporary employees had been laid off, NSC financialsshowed a substantial rise in sales compared toprevious years. These increases were, however, offsetto a great extent by a high rate of product returns.Furthermore, travel expenses were disproportionatelyhigh compared with previous years.Requireda. Using the COSO internal control model for controlactivities (e.g., transaction authorization, andsegregation of duties), identify any potentialinternal control weaknesses in the NSC system.b. For each weakness, discuss the potential forfraud in the system.c. Make recommendations for correcting each identifiedcontrol weakness.

Practical Management Science

6th Edition

ISBN:9781337406659

Author:WINSTON, Wayne L.

Publisher:WINSTON, Wayne L.

Chapter2: Introduction To Spreadsheet Modeling

Section: Chapter Questions

Problem 20P: Julie James is opening a lemonade stand. She believes the fixed cost per week of running the stand...

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The Never Sink Canoe (NSC) Company is a small
manufacturer of high-quality canoes, pontoons, and
fishing craft. It sells its products to sporting good
stores throughout the northeast United States and
parts of Canada. NSC began as a small familyowned
company that served a local market. Over
the years, it expanded its market through the use
of seasonal sales force employees. The sales staff
work on straight commission and travel extensively
while taking orders from customers at sporting
outlets and trade shows during the water sports
and fishing season. All sales are on credit and payment
is due within 30 days after being billed. In late
fall when the season ends, the temporary sales personnel
are laid off until the following spring.
Employee turnover is high with approximately 50
percent of the laid-off sales staff returning the following
year.NSC’s revenue and expense procedures associated
with its sales force activities are as follows:
The salesperson takes an order, reviews the customer’s
creditworthiness, and submits the approved
order to the accounting clerk at the main office
who calculates the sales commission to be remitted
and promptly writes a check to the salesperson. The
clerk then sets up an accounts receivable for the customer.
The clerk also receives cash in payment of
customer accounts and updates the related customer
AR records.
The order is then sent to the billing department,
where the sale is recorded and the customer is billed.
Finally, the order is sent to the warehouse where the
items are selected, packaged, and shipped to the customer.
The warehouse clerk then updates the inventory
subsidiary ledger to reflect the shipment.
Sales staff periodically submit travel expense
reimbursement claims on hard-copy forms to the
accounting clerk. NSC policy requires sales staff to
keep receipts, but they are not required to submit
them with the reimbursement forms. The clerk prepares
an account payable for each salesperson based
on their reimbursement form and twice each month
writes checks for them for the amount indicated in
their individual AP account.
After the end of the past season, and after the
temporary employees had been laid off, NSC financials
showed a substantial rise in sales compared to
previous years. These increases were, however, offset
to a great extent by a high rate of product returns.
Furthermore, travel expenses were disproportionately
high compared with previous years.
Required
a. Using the COSO internal control model for control
activities (e.g., transaction authorization, and
segregation of duties), identify any potential
internal control weaknesses in the NSC system.
b. For each weakness, discuss the potential for
fraud in the system.
c. Make recommendations for correcting each identified
control weakness.

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