PEI Case Study Summary
P(6-12)
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 …show more content…
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 for returned goods that are damaged.
Correction: Require the credit manager to receive an acknowledgement from Shipping and Receiving that the goods were returned in good condition before issuing a credit memo. In addition, Accounting should not process any credit memos without receiving a report of goods received from Shipping and
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 …show more content…
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 for returned goods that are damaged.
Correction: Require the credit manager to receive an acknowledgement from Shipping and Receiving that the goods were returned in good condition before issuing a credit memo. In addition, Accounting should not process any credit memos without receiving a report of goods received from Shipping and