QUESTION $2(30$ marks$)$

You are an Audit Manager on the audit of Sports $($Pty$)$ Ltd $($Sports$),$ a company that

is a wholesaler of a wide variety of sportswear and sports equipment to gyms and

sports retailers. Sports sells all its goods exclusively on credit.

Sports has been operating for over $25$ years. The internal controls in place at Sports

were determined to be inadequate.

You received the following information from the Financial Manager, Ben Lee, relating

to receiving customers orders and the authorisation of sales transactions:

$$ All orders are received either by email or phone.

$$ Customers, at times, place orders via phone and after a few days, will send

an email to confirm the phone order.

$$ When a customer calls to place an order on the phone, it is answered by

Mercy Key, the sales order clerk. When he receives the call and he

recognises the customer's voice, he will not ask for the customer$$s name and

he does not confirm that customer$$s account number.

$$ Mercy Key keeps an updated hardcopy list of the debtors that reflects the

customer$$s name, account number, address and contact details. In addition,

he has an updated hardcopy price list to check prices of the sportswear and

sports equipment.

$$ If Mercy Key is satisfied that the caller is an account holder, he fills out one

copy of the internal sales order $($ISO$)$ by inserting the customer account

number per the debtor's list and records the description and quantity of goods.

$$ After Mercy Key actions the above, he ends the call with the customer and

thereafter completes the ISO by filling out the customer's name and delivery

address and lastly signs the ISO.

$$ If the caller is not an account holder, Mercy Key fills out a new customer form

by obtaining information from the new customer over the phone. Theinformation provided is the new customer$$s delivery address, contact details,

bank details and three trade references. Thereafter, Mercy Key will fill out an

ISO in the same way he does for an existing debtor except for filling in the

customer's account number.

$$ At the end of each business day, Mercy Key will place the existing debtors'

ISOs on the desk of the warehouse controller, Manny Henn.The ISOs of the

new debtors are given to the debtors' clerk, Mandy May.

$$ Mandy May then goes ahead and creates a customer account number, files

the new customer form and updates the debtors list.

REQUIRED:

Identify and explain the internal control weakness in receiving customer orders

and sales authorisation as described in the scenario above.

Set your answer out in the following table:

Weaknesses Explanations

xxxx xxxx

$(30$ marks$)$