a. Internal control strengths in PEI's system include:
* Automated customer credit limit master file. Allows automated checking of a customer's credit line on a real-time basis before sales orders are filled. * The Credit Manager establishes credit limits for new customers on a daily basis so that credit-worthy customers may have their orders filled in a timely manner. * Real-time customer credit checks before orders are processed. * Aging reports provided to the credit manager allows for rapid detection of overdue and near overdue accounts so that corrective action can be taken. * Customer is not billed until the order has shipped.
* Shipping and Receiving accept and inspect returned materials to assure the receipt and identification of damaged materials and to limit credit returns. * Credit manager issues credit memos for returned merchandise. * Warehouse personnel confirm the availability of materials to fill orders and prepare back-orders for sales orders that cannot be filled with current stock. * General Accounting posts changes to the general ledger master file after accessing the accounts receivable master file, electronic sales, and credit memo files.
b Internal control weaknesses in PEI's system, and solutions to those weaknesses include:
Weakness 1: The Credit Department only checks the aging report from Accounts Receivable at month-end, which delays the identification of slow or non-paying customers for potential credit status changes.
Correction: Revise the aging report process to produce an exception report whenever a customer exceeds their credit limit. The exception report should automatically be sent to the credit manager by email so that corrective action can be taken in a timely manner.
Weakness 2 Customer credit requests for sales returns are not compared to materials received, which might result in credits to customer accounts for goods not returned or...