Internal Control Methods

 



1. Risk assessment procedures

2. Tests of internal controls

3. Substantive tests of transactions

4. Substantive analytical procedures

5. Substantive tests of details of balances

 

Media and function and remittance advice, invoice, customer order, sales order – definitions

 

 

Describe a control measure that would reduce likelihood

Or 5 control measures and explain what fraud/error it catches

 

  • Sale to a fictitious customer
    • New customers must be approved by sales V/P

 

  • Sale to an unauthorized customer
    • New customers must be approved by sales V/P

 

  • Customer accidentally sends duplicate order
    • Order acknowledgements are sent to customers

 

  • Customer accidentally orders wrong line item
    • Order acknowledgements are sent to customers

 

–          Customer order lost

  • Order acknowledgements are sent to customers

 

–          Wrong customer number put on sale invoice

  • Customers are given an authorized customer number which must be used when an order is placed

 

–          Too high of price on sales order

–          Too low of price on sales order

  • Sales clerks verify product  identification numbers, prices, shipping addresses and sales and freight terms quoted by the customer

 

–          Quantity overstated on order

  • Order acknowledgements are sent to customers

 

–          Quantity understated on order

  • Order acknowledgements are sent to customers

 

 

 

 

•Order processing clerks should not have access to inventory or the sales/& accounts receivable accounting records
•New customers must be approved by sales V/P
•Customers are given an authorized customer number which must be used when an order is placed
•Customer P.O. forms are required for all orders placed
•Prenumbered sales order forms are numerically controlled
•Access to sales order forms is restricted
•Sales clerks verify product  identification numbers, prices, shipping addresses and sales and freight terms quoted by the customer
•A copy of the sales order is forwarded to the credit approval function
•Temporary holds are placed on inventory items ordered by the customer
•Credit limits are established for all customers requiring less than $500,000 of credit
•Credit limits established are approved by the treasurer and reviewed on a quarterly basis
•Credit approval clerks report to the treasurer and perform no other duties
•Orders packed are independently verified and approved for shipment by packing inspectors
•Prenumbered shipping documents are numerically controlled
•A log is employed to control the chronological sequence of outgoing shipments
•Orders packed are independently verified and approved for shipment by packing inspectors
•Prenumbered shipping documents are numerically controlled
•A log is employed to control the chronological sequence of outgoing shipments
•Invoicing data are entered by clerks who report to the controller
•Batch totals are employed to control data entry
•Invoices generated by the system are reviewed for overall propriety by media clerks who report to the controller
•Standardized journal entries are used to control sales entries
•The sales entry is posted by the general ledger clerk
•A trial balance of trade accounts receivable is prepared and reconciled to the general ledger on a routine periodic basis
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