1. Ordering Function:

• Objectives = Record orders from customers & initiate action to fill them.

  
  

• Doc. present:

  
  

  • Customer order
    

  • Internal Sales Order (ISO)
    

  • Price list
    

  • Credit app. form
    

  • Credit bureau info.
    

• Controls:

  
  
  1. The person responsible for ordering - generates an ISO when customer order is received.
  2. ISO is:
     
     • Numerical,
     • Contains cust. details,
     • Specifies Quantity ordered,
     • Contains Price per official price list,
     • Authorised by credit manager/sales manager.
  3. New customer vs old customer:
     
     • New customer - Go through credit app. process:
       = Application form to be completed.
       = Background check to determine if a customer is creditworthy.
       = If cust. creditworthy, credit depart. will establish credit limit.
       = Capture info on permanent master file.
       = Change to details must be authorised by credit controller.
     • Old customer
       = Valid customers = present their identity number or account number.
       = Credit limit should be checked & if credit limit has been exceeded orders cannot ❌ be accepted.

4. Recording Function:

• Objective = Record sales made & raise the corresponding debtor promptly.

  
  

• Doc. present:

  
  

  • Invoice,
    

  • Sales Journal,
    

  • Debtors ledger,
    

  • General ledger.
    

• Controls:

  
  
  1. Invoice = recorded accurately and entered against correct debtor.
  2. Compare Inv. - DN, checking for:
     = Quantity,
     =Description,
     =Prices.
  3. Sequence checks on invoices - missing/duplicate nrs followed up.
  4. Trace posting = sales journal➡debtors ledger➡general ledger.
  5. Monthly statements sent out by independent person.

5. Credit man. Function:

• Objective = Limit the loss from bad debts & encourage debtors to pay promptly.

• Doc. present:

  
  

  • ALL records kept in the cycle are relevant,
    

  • Age analysis,
    

  • Monthly statement,
    

  • Credit bureau info.
    

• Controls:

  
  
  1. Credit application process NB!!!!
  2. Identification of debtor to be handed over to lawyers

2. Dispatch Function:

• Objective = Fill accepted orders promptly & accurately & ensure only authorised orders are acted on.

  
  

• Doc present:

  
  

   - Picking Slip
   - DN
   - Back order note (cust. order that cannot ❌ be filled)
   - List of Deliveries
  

• Controls:

  
  

  1. Dispatch function is a manual function

  
  

  = A person will be responsible for picking goods from the store using signed copy of picking slip.

  
  

  = Thereafter a DN is created.

  
  

  = Goods which cannot ❌ be picked i.e out of stock will be ID. and Back order note created.

  
  

  2. Transferred to dispatch

  
  

  = Once goods picked & DN made out, transfer to dispatch to be packed, labeled & delivered.

  
  

  3. Delivery of goods:

  
  

  = DN is:

  
  

  • Sequentially numbered
    

  • Describes Quantity & Goods
    

  • Signed by cust. as receipt of goods
    

  • Recorded in register te be matched with invoice
    

  • Issued in duplicate copy
    

4. Counter Sales:
= Cust. signs DN or Invoice
= Checking of items to the invoice
5. Gate Control:
= Guards should count goods & agree goods with DN & sign
= Guards should check quantity on DN vs quantity being deliverd.
6. Controls must be sound = goods have left custody of the warehouse & are susceptible to theft.
7. NB!!!! Segregation of duties.

3. Invoicing Function:

• Objective = Notify customers promptly of amounts due for goods supplied.

  
  

• Doc. present:

  
  

  • Sales invoice,
    

  • Price lists.
    

• Controls:

  
  
  1. On the return of signed DN from cust.:
     = DN matched with ISO & invoice should be generated.
     = Numerical list of DN's & invoices is freq. produced & missing numbers are followed up by SENIOR person.
     = Quantities on invoice = obtained from DN
     = Price on invoice = obtained from price list.
     = Calc = reviewed by independent person.

1. Basic Controls:

• Segregation of duties (receipts & recording).
• Different types of cash = Kept separate & recorded separate.
• Proper stationery controls:
  = Numerically recorded.
  = Locked away.
  = Recorded in register (sign for issuing & on receipt).
• Money received via mail:
  = Open & count by 2 independent persons.
  = Recorded in MAIL register i.e. Recorded separately.
  = Person who received it should sign as proof of receipt.
• SAFEGUARDING:
  = Locked in vault, etc (key controlled).
  = Banked ASAP (Next day/ 2X per day).
• Post-dated cheques received should be recorded in register & strictly controlled.
• Adequate insurance taken out against theft & fraud.
  

2. Controls over Cash:

• CASHIERS:

  
  
  • Balance cash daily & compare with source doc. (receipts, inv., cash register totals) & record it on cash receipts summary:
    = Signed by cashier,
    =Indep. reviewed by senior official,
    = Senior counts money in cashier's presence (cashier signs for receipt back of cash).
  • Compare cash with supporting doc.
    = Shortages should be paid-in by cashier.
  • Every cashier responsible for own funds:
    = cash/cash register - locked & proper key control exercised.
  • Every cashier responsible for own float:
    = Locked in cash drawer/cashbox.
  • Supervision over cashiers (senior/cameras).
  • Cash must be banked ASAP (next day/ 2X per day)
    

• PETTY CASH:

  
  

  = 1 Person responsible.

  
  

  = Physical safekeeping.

  
  

  = Ltd fund amount.

  
  

  = Define type of expenditure.

  
  

  = Pre-numbered petty cash voucher.

  
  

  = Pmt approved.

  
  

  = Reimbursements

  
  

  = Exact amount of voucher.

  
  

  = Vouchers/slips cancelled.

3. Controls over bank account:

• Bank account reconciled monthly with cashbook:
  = Indep. from person that writes up the cashbook.
  = Reviewed by senior indep. official.
• EFT's = Valid receipts method:
  
  • When making an EFT payment:
  • Multilevel passwords, by 2 senior employees should be used.
  • Access should be limited to 1 computer.
  • Proper access controls over terminal used to make payment.
  • The terminal should shutdown after 3 unsuccessful attempts of logging in.
  • Completeness test should be performed.
  • 2 passwords of 2 different senior employees should be entered to effect the payment.
  • Reconciliations should be done by a person independent of the person who made the EFT transaction.
    
    

After EFT payments are made there should be an:

• Audit trial.
• Payment should reflect on organizations bank statement.
• Bank reconciliation should be performed.
  

Procedure to detect Lapping/Rolling & Kiting:

• Positive Accounts Receivable confirmations,
  
  • Surprise cash counts & bank reconciliations, &
    -Cash summaries compared to entries in cash receipts & cash pmts records, mail register, deposit slips,etc.

1. Lapping/ Rolling:
-> Def: Misappropriation of receipts in cash from cash sales/receipts from accounts receivables:

• Removes cash of R100 & replaces with cheque of R100 received from debtor A, &
• Later credits A's account with R100, transferring amount to debtor B's account

2. Kiting:

• Def: Removes cash & reflects as outstanding deposit on bank Reconciliation, &

  
  

  later a cheque is drawn for fictitious expenses & cheque is deposited in company's bank account = clearing outstanding deposit.

• Objective = Control goods returned by cust.

  
  

• Doc. present:

  
  

  = Goods Returned Voucher (GRV),

  
  

  = Credit note returns & allowances journal,

  
  

  = Debtors journal,

  
  

  = General Ledger.

  
  

• Controls:

  
  
  1. Goods returned:
     
     • Recorded on return & debtors account debited, &
     • A goods returned voucher & credit note issued.
  2. Adjustments:
     
     • Ensure accuracy (Recording & Authorisation),
     • Discounts,
     • Returns & corrections,
     • Writing of bad debt.
  3. Controls:
     
     • Authorisation,
     • Segregation of duties,
     • Formal doc.,
     • Monitoring & supervision.

- Classification: All sales are correctly classified accordingto nature thereof.

1. External & Intercompany sales are classified as such - clearly distinguished by:
   
   • Code nr., &
   • recorded on separate doc. & separately recorded.

- Accuracy: All payments & discounts accounted for @ correct amount & discounts are accurately calc.

1. Discounts granted are independently reviewed.
2. Calc. are independently reviewed.

• Weaknesses: Where was the internal control environment not implemented correctly?
  E.g. Do not have a credit application process in place.

- Occurrence/ Validity: All recorded credit sales are valid & supported by proper doc.

1. All entries in sales journal are supported by:
   
   • ISO
   • DN
   • Invoice.

- Completeness: All valid credit sales are recorded & nothing is left out.

1. ISO made out on receipt of client's order which:
   
   • Numerical,
   • Specifies quantity ordered,
   • Contains prices of goods per official price list.
   2. Delivery note is preped after sales is authorised, which is:
   • Sequentially numbered,
   • Describes quantity & the goods
   • Signed by client as proof of receipt of goods.
   • Recorded in register - match with invoice @ later stage.
   3. Numerical invoice is made out on receipt of signed DN & marked off in register.
   4. All unmatched DN's are freq. followed up.
   5. Numerical list of DN's & invoices is freq. produced & missing nrs are followed up by senior person.
   6. Gate control:
   • Guard counts goods & agrees it with DN.

- Authorisation: All credit sales are authorised according to company policy.

1. Credit limit determined for all credit clients after approval of their creditworthiness.
2. NO credit granted for non-creditworthy clients.
3. ISO made out on receipt of client's order - authorised by credit/ sales manager.
4. Sales manager authorises credit sales dailty - signs the orders as proof of authorisation.

- Accuracy: All credit sales are recorded on SALES INVOICES at correct QUANTITY, PRICE & are ARITHMETICALLY correct.

1. Quantities on invoices are obtained from DN.
2. Price on invoice is obtained from official price list (masterfile).
3. Calc. are reviewed by indep. person.
   - Recording: All credit sales invoices are recorded correctly.
4. Sales journal recorded from sales invoices
5. Sales journal are posted to:
   
   • Individual debtor's account in debtors ledger
   • Total sales to debtors control account & sales account in general ledger
6. Debtors control account is reconciled monthly with debtor's ledger.

- Cut off: All sales transactions are recorded in correct reporting period.

1. Invoices are made out from DN i.r.o. date of delivery.

• Risk: What could go wrong if the internal control environment is not implemented correctly:
  
  • Grant credit to uncreditworthy customers.
  • Grant credit to customers that cannot afford to purchase on credit.
  • These customers will not be able to pay back for goods they have purchased.
  • ⬆ Increase in bad debt that will need to be written off.

- Recording & Classification: All payments & discounts are correctly recorded & classified.

1. Payments allocated to debtor's account & accounting period according to PAYMENT ADVICE.
2. Debtors' statements are sent out regularly & differences & errors are immediately independently followed up.

- Completeness: All valid payments received from debtors are recorded and nothing is left out.

1. Numeric receipts are issued i.r.o. all money received (slips).
2. Daily cash receipts summary is preped, balanced with cash & independently reviewed.
3. A debtors' control account is kept & regularly reconed with debtors' ledger.

- Cut off: Payments & discounts are recorded in correct period to which it relates.

1. Payments & discounts are recorded on date of receipt (according to payment advice).

- Occurrence/Validity: All payments & discounts on debtors' accounts are valid & are supported by approp. doc.

1. Supporting doc:
   
   • Sequentially numbered receipts.
   • Cash receipts summary
   • Deposit slips

- Authorisation: All credit adjustments (CN, discounts, etc) are authorised according to company policy.

1. Settlement discounts are granted according to fixed company policy.
2. Managements responsibility to monitor discounts granted & goods returned

Internal control/ Recommendation:

• NB to have credit application process (policy).
  = Customer fill in application form.
  = You run a background check to determine customer creditworthiness.
  = If customer is creditworthy determine credit limit.