Describe potential internal control weaknesses in the above activities of MPS Limited. Discuss the potential risks

Home, - Describe potential internal control weaknesses

Question - As an Accounting Information System expert, you provide consultancy services to various clients in Australia. MPS Limited is one of your clients, and Miss Angela, the head of its accounting department, is concerned about the revenue cycle's business processes and data related operations. Therefore, she has recently contacted you to evaluate their revenue cycle. You asked Miss Angela to provide the system flowchart of the business activities involved in their revenue cycle.

a) Describe potential internal control weaknesses in the above activities of MPS Limited.

Answer - Potential internal control weaknesses

1) There is no authorization of the transactions. There is no proper recording of every transaction.

2) There is no proper segregation of the duties. Some of the employees are having the more workload and some of the employees have the less workload.

3) The sales orders are processed by the sales clerk and he approves the credit.

4) Salesclerk recieves and processes the sales order.

5) Shippign clerk is shipping to customer without checking the order specifications.

6) Shipping does nor prepare any shipping document.

7) Warehouse clerk picks the order and packs the order. Both tasks are done by warehouse clerk. There is no verification of picked goods.

8) The reconciliation of the book statement is done after long time of the month.

9) The invoice copy is not saved in the organization. It is only mailed to customers.

10) Credit memo is not issued based on the approval of credit.

b) Discuss the potential risks associated with the internal control weaknesses identified in Section (A) above.

Answer - Approval and the denial of the credit can be done non authenticated person. There is no authentication of the credit manager. Any illegal person can approve the credit for the goods.

Access to transaction record by non authenticated person.

Credit memo is not issued on basis of the approval of credit. This can lead to financial loss.

Misappropriation of the inventory can be there by warehouse clerk. The order Is picked and packed by the warehouse clerk but there is no information recorded by the goods received and the goods packed. There can be theft of the goods in this process by the warehouse clerk.

No record of the shipped order. There is no shipping document for the goods which are shipped by the shpping clerk.

c) Based on Section (B) above, what types of frauds are possible.

Types of frauds possible are

Misappropriation of assets

The assests can misappropriated as there is no shipping document of the shipped assets.

False fianancial reporting

This can be there is reconciliation of the accounts after a month long time.

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