Question

Georgia Beemster, CPA, is examining the financial statements of the Louisville Sales Corporation, which recently installed a computerized processing system. The following comments have been extracted from Beemster’s notes on computer operations and the processing and control of shipping notices and customer invoices:
• To minimize inconvenience, Louisville made the conversion to the new accounting information system without changing its existing system. The vendor supervised the conversion and trained all computer department employees in systems design, operations, and programming.
• Each 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 computer operations because each employee is responsible for her or his own computer runs.
• At least one computer department employee remains in the computer room during office hours and only computer department employees have keys to the computer room.
• The vendor provided Louisville with systems documentation consisting of a set of record formats and program lists. This documentation and the files are maintained in the computer department.
• Louisville considered the desirability of IT controls but decided to retain the manual controls from its existing system.
• Louisville’s products are shipped directly from public warehouses, which forward shipping notices to general accounting. There, a billing clerk enters the price of the items and accounts for the numerical sequence of shipping notices from each warehouse. The billing clerk also prepares daily summaries of the units shipped and the unit prices.
Shipping notices and daily summaries are forwarded to the computer department for input and processing. Extension calculations are made on 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 daily summaries.
• 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.

Required:
Describe the weaknesses in the internal control over information and data flows and the procedures for processing shipping notices and customer invoices. Recommend some improvements in these control policies and procedures. Organize your answer sheet with two columns, one headed Weaknesses and the other headed Recommended Improvements.
Shipping notices and daily summaries are forwarded to the computer department for input and processing. Extension calculations are made on 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 daily summaries.
• 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.

Required:
Describe the weaknesses in the internal control over information and data flows and the procedures for processing shipping notices and customer invoices. Recommend some improvements in these control policies and procedures. Organize your answer sheet with two columns, one headed Weaknesses and the other headed Recommended Improvements.



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  • CreatedOctober 27, 2014
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