a. Identify each weakness in the internal controls in the new computerized system and each weakness or inefficiency in the procedures for processing and controlling delivery orders and sales invoices. Weaknesses in Internal Controls
The first weakness in internal controls is related to the computerized function which included shipping, billing and accounts receivable are permanently assigned to a specific computer operator. Such arrangement showed the poor data center and network operations controls. As there is only one specific computer operator is assigned for a lot of major functions, he or she may potentially involved in personal error or mistakes. Besides, the computer operator is responsible for making program changes, running the program, and reconciling the computer log. Hence, there will be lack of monitoring due to self review by the computer operator. Second weakness in internal controls is in which each computer programmer allowed access to the computer room by using magnetic card and a digital code that is different for each card. Eventually, such access would hinder the access security controls due to the fact that computer programmer can make unauthorized modifications to system and application programs and engage in fictitious transactions. Other than that, the responsibility for custody and control of magnetic tapes and system documentation randomly rotated among computer operators would be another weakness for internal controls. Random rotation among computer operators could obstruct physical controls, access security controls and monitoring as each computer operator could obtain opportunity to control those documentation. Therefore, it would be potentially result in loss of data and information through theft or unauthorized used, fire and water damage, electrical problems and sabotage. According to the case, the new computerized system is lacking the policies and procedures related to planning, acquisition and implementation of a new system. Without a complete set of policies and procedures, there would lead to the negative impacts on application systems acquisition, development and maintenance controls. For example, in system development, there are no non-IT personnel or other key users of software involved. Since there is no documentation, auditors would face difficulty in understanding the accounting system. Last but not less, omission of batch totals and processing controls is a weakness of internal controls in the new computerized system. Without the processing controls, there would be lead to poor data capture controls and data validation controls. The elimination of batch totals makes it no effective way of controlling data capture as we cannot ensure the accuracy and completeness of inputs.
Weaknesses or Inefficiencies in the Procedures for Processing and Controlling Delivery Orders and Sales Invoices Based on the case, the billing clerk is the only person who enters price information, accounts for numerical sequence of shipping notices, preparing daily adding machine tapes of units shipped as well as sales amounts and mails out client invoice. In fact, the person who input data should not have access to the output of data due to concern of falsified modification or unintentional error of data which leads to issue of validity. Furthermore, the shipping notice and adding machine tapes are forwarded to computer department for processing. Such an inappropriate procedure would lead to unauthorized use of data input by the IT staff. Besides, it is improper to forward those document to IT department as they are not involve in accounting process. Lastly, the inefficient action of billing clerk to retain the third copy of the invoice in an open invoice file that serves as a detailed account receivable record will weaken the procedures for processing. Eventually, an open invoice file can result in theft of client invoice or misappropriate cash since the company had loss those invoices as references...
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