KataranaSdnBhd operates a business in the wholesale distribution of consumer products. You are one of the auditors attached to Vijay Salleh& Associates who has been appointed to audit KataranaSdnBhd's financial statements for the financial year ended 31 December 2018. Your team leader has assigned you to review the company's sales system. Your observations are as follows:

Sales Department

The sales department directly receives orders from both regular and new customers. For regular customers, Encik Faizal, who is the sales department assistant processes the order and immediately prepares the delivery order in four copies. The first copy is sent to the customer, second copy to the store, third copy to the accounts department and the fourth copy is retained in the sales department's file. For new customers, the sales manager grants the credit and processes the order after the approval by the higher management.

Warehousing Department

EncikKhairil is the only storekeeper handling the stores department. On receipt of the delivery order from the sales department, he makes the necessary arrangement to deliver the goods to the customers. He prepares the delivery notes in quadruplicate with the customer's details, quantity, specification and rates of the goods delivered. Goods will be delivered to the customers either at the stores or at their site based on the terms in the delivery order. The original copy of the delivery note is given to the customer at the time of delivery. The second copy is given to accounts department, third copy is sent to the sales department and the fourth copy is kept in the store's file.

Accounts Department

The accounts department is headed by Puan Amirah and assisted by a clerk, Encik Muthu and a cashier. On receipt of a copy of the delivery order and delivery note, Encik Muthu raises the invoice and forwards the original copy to the customer. The second copy is sent to the sales departrnent while the third copy is retained in his department's file. All cheques received by the company are handed over to the cashier who will issue serially numbered receipts and the cashier, then, deposits the cheques into the bank.

Encik Muthu, who maintains the sundry debtors' ledger, posts the transactions and prepares monthly schedules of outstanding debtors. If the customer delays payment or made short payment, he will write to them. If the short payment is due to shortage in supply or poor quality of product, Encik Muthu will credit the customer's account with suitable rebate or allowances. Encik Muthu also prepares the bank reconciliation statement once in every three months.

Required:

1. Identify any six (6) internal control weaknesses of the existing sales system of KataranaSdnBhd and describe the potential impact that could occur due to the weaknesses that have been identified. 

2. Suggest three (3) improvements that can be made to the internal control system of KataranaSdnBhd that could prevent any potential irregularities in the company.

3. Differentiate between “Internal control’ and “test of control." 

Internal control weaknesses

Impact of the weaknesses

Answer rating: 100% (QA)

A Internal control weakness are 1 Inadequate documentation as documents or records provides evidence ... View the full answer