George Beemster, CPA, is examining the financial statements of the Louisville Sales Corporation, which recently installed an off-line electronic computer. The following comments have been extracted from Mr. Beemster's notes on computer operations and the processing and control of shipping notices and customer invoices:

1. To minimize inconvenience Louisville converted without change its existing data processing system, which utilized tabulating equipment. The computer company supervised the conversion and has provided training to all computer department employees (excepi kevpunch operators) in systems design, operations, and programming.

2. Each computer run is assigned to a specific emplovee, 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 his own computer runs.
3. 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.
4. System documentation consists of those materials furnished by the computer company-a set of record formats and program listings. These and the tape library are kept in a corner of the computer department.
5. The corporation considered the desirability of programmed controls but decided to retain the manual controls from its existing system.
6. Corporation products are shipped directly from public warehouses which forward 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. The billing clerk also prepares daily adding machine tapes ("control tapes") of the units shipped and the unit prices.
7. Shipping notices and control tapes are forwarded to the computer department for key punching and processing. Extensions 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 control tapes.
8. 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 detail accounts receivable record.
Required:

a. 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. Organize your answer sheets as follows:

b. Indicate which of the eight EDP controls is applicable to each weakness.

Transcribed Image Text:

Orders From Salesmen Posting Machine Invoice Preparation Charge Sales Invoices Run 1 Copy 4 FLOWCHART Copies 1 & 2 to Customer Copy 3 to Shipping From Mailroom Batch Total Cash Remittance Advices Keypunch and Verify Run 3 Run 2 Run 4