Top Notch Revenue Systems Control Weaknesses

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Top Notch Revenue Systems
November 18, 2010

Top Notch has a good start to their revenue system, but certain internal control weaknesses are present. The first internal control weakness observed has to do with credit checks. Currently the sales representative checks customer’s credit at the time they start to process the sales order. This is appropriate for general credit approval. The internal control weakness arises from special credit authorization scenarios. This includes checking new customers, extending additional credit to existing customers, etc. In these special cases a credit department, separate from the sales representative should check credit approval. The credit department should only provide a read-only copy to information about customer credit limits. This is to prevent sales representatives (specifically commission based sales persons) from ignoring or increasing customer’s credit limits in order to make a sale and collect the commission. The next internal control weakness regards inventory. Stockouts result in the possibility of loss of sales and customer dissatisfaction. In the current system stockouts are only realized after the sales order has been processed and the warehouse clerk attempts to retrieve the requested inventory. To answer this weakness Top Notch should implement online AIS that facilitate the use of perpetual inventory methods. This would provide sales representatives an updated and accurate record of the inventory file before processing a sales order. To further combat this problem, periodic physical counts should be used as well as accurate and updated sales forecasts. The third internal control weakness presented a threat to the theft of inventory. The issue stems from the need of segregation of duties. The warehouse clerk has custodial and recording functions of inventory. The warehouse clerk could easily steal some inventory and change the records. To mitigate this problem a separate shipping department is needed. The...
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