Highstreet Company is a local SME selling mid-range imported bathroom accessories to home renovation contractors, interior designers, as well as individual home owners. They have a main showroom located in an industrial estate that caters mainly to contractors and interior designers and two other outlets that cater to walk-in customers. Billing Process The billing process begins in the morning when the billing clerk from the accounts receivables department reviews the “To be billed” folder to check for sets of delivery order and proforma invoice. The billing clerk will review each set of delivery orders and proforma invoice to verify if they have been signed by the customer. In situations where important information, e.g. customer signature or proforma invoice is missing, the billing clerk will return the documents to the sales department for verification. After reviewing and checking through the documents, the billing clerk will enter the delivery order number into the custom billing software in order to display the sales order information. The billing clerk will check if the information on the sales order, e.g. the items, prices, and discount are as per delivery order and proforma invoice. It is common for the deliveryman to write and indicate on the delivery order any changes to items delivered as some items may not be the correct color, or are found to be scratched. However, due to the high volume of delivery, the billing clerk usually skims through the stack and tries to pick out those that have obvious changes made to the documents. For those that had changes made, she will enter the updated information, e.g. changing the items or quantity of items into the sales order. After that, the billing clerk will verify if the customer is a walk-in customer or a business customer by checking with the customer code. Walk-in customers all start with “W” for their customer code while business customer’s code starts with “B.” For the walk-in customers, the billing clerk has to ensure that the credit term is set to the standard 15 days. For the business customers, the billing clerk will set the credit term to 30 days. Once that is done, the billing clerk will generate the invoice for the customer and print two copies of the final invoice. One copy of the final invoices is mailed to the customers. The other printed copy of the invoice is collated with the delivery order and proforma invoice and forwarded to the accounts receivables clerk. The accounts receivable clerk will retrieve the collated printed invoices and update the general ledger and the accounts receivables file within the accounting system. The accounts receivables clerk will then file the collated invoices (with the delivery order and proforma invoice) in the accounts receivables folder. They are arranged by the customer code.

(a) Analyse the Highstreet Company process as discussed in the passage above. Prepare the flowchart for the billing process based on your analysis. State all assumptions made.

Payment/Cash Receipt Process In the afternoon, the payment and cash receipt process starts when the billing clerk goes to the mailroom to retrieve cheques mailed in by customers and collates them in a folder. Then the billing clerk will log into the Internet bank system and check the company’s Internet bank account. She will print out customer payments made via Internet banking. The billing clerk will then verify the payment information on the cheques and Internet banking payment printout against the accounts receivable file within their accounting system. When the total tallies, the billing clerk will apply the payments against the record and update the accounts receivable for the customer and the general ledger. She will also print out the receipt voucher. The billing clerk will then make a copy of the cheques and hand the cheques over to the accounts receivable clerk. The billing clerk will then file the copy of the cheque and Internet payment printout together with the receipt voucher in the Paid folder. In cases where the amounts do not tally, the billing clerk will send it to the Finance manager to counter verify with the customers. The accounts receivable clerk will retrieve the receipt voucher with the cheque copies and internet payment printout from the Paid folder. He will retrieve the respective invoice/delivery order/proforma invoice from the Accounts Receivable folder and attach the receipt voucher with it and stamp it as paid. He will then file the paid invoice into the Paid folder. This paper trail is necessary as their accounting system and billing software are housed in two computer servers located in their main office and they do not currently have any data backup for these servers. Finally, the accounts receivable clerk will collate all the cheques and deposit them at the bank.

(b) Using the description from the billing and payment/cash receipt processes, identify potential weaknesses in Highstreet Company’s internal controls. Describe threats or problems that arise from each weakness and also provide a solution(s) to deal with each respective weakness. (Do not only state general control weaknesses. You have to discuss the control weaknesses using information from the above description).