macro project

Marco Appliances Inc.

WP C.1.

Evaluation of Control Environment

Potential Control Strengths

Potential Misstatement Detected or Corrected

Marco uses a distributed computer system that gives employees who need access to data the appropriate access.

This improves the control environment because it all employees are working with one database, which reduces potential errors from multiple recording of data.

New employees are interview by supervisor and officers are directly involved to question their educational values, skills and expertise before they are employed. Training reviews and update are compulsory for employees.

The presence of experienced staff personnel at interview signals that correct evaluation is carried out on candidates before they are selected. Integrity and access are protected to ensure efficiency is prioritized in Macro Appliance.

To forestall sound security measures, accounts and passwords are given only to users that need it, information access is limited to authorized users, read only and text limitations are stressed. Files access is limited, and backup is done daily.

Only required and authorized user are permitted to avoid unauthorized users, personal information access is also protected. Data security is very vital to avoid fraud, scam and information manipulation.

There is a board meeting that quarterly reviews the current issue that is happening and question direct offers on discrepancies and any issues they do not understand.

The board meeting act as a guidance and send a message to all officers to ensure organization objectives are accurate and to ensure that there are no issues, and if they do exist there should be a valid reason for it existence.

Marco Appliances Inc.

WP C.1.

Evaluation of Control Environment

Potential Control Weakness

Potential Misstatement

Recommended Correction

The case describes extensive use of policies and procedures; training new employees in these policies and procedures; and having yearly retraining sessions. However, it doesn't mention any on-going monitoring of employee behavior nor any use of employees' record of compliance with them in annual performance reviews.

Having clear policies and procedures with excellent training is good, but you also need some form of monitoring system to ensure the emphasis and training is working.

Recommend that Marco implement annual reviews that include evaluation of how effectively employees are implementing firm policies and procedures.

Macro uses a software recommended by its auditors and update just once.

All system needs consistent checks and updates. The startup issues can be resolved if consistent checks are available. High risk exposure to Macro`s data and information are possible due to lack of constant checks.

I recommend Macro should consistently updates and check it system updates to get upgraded to enjoy the services of the software effectively.

All new employees are scrutinized but background investigation is limited, criminal background checks are not done.

A background checks that is limited to employee’s reference would not give a clear view of the educational background and criminal records on prospective employees. Employing someone with a criminal record is highly risky because they can easily have manipulated records to their advantage, embezzled funds and produce records that misstated.

This writer suggests a criminal background investigation should be conducted to all new employees before an engagement letter be tender to potential employees. Existing employees needs to undergo random checks.

Marco Appliances Inc.

WP C.2.

Evaluation of Transaction Processing Control Design

Potential Control Weakness

Potential Misstatement

Recommended Correction

Possible Weakness

Sales

Inaccurate credit checks

Ms. Amalia approves sales requisition based on her pending knowledge or review of clients’ accounts. Thorough credit checks are not carried out as approval is based on client records at hand. The risk of accepting sales to clients whose records that are not favorable and ability to pay back within the require period is very high.

A credit evaluation team should be created to assist Macro with credit checks responsibilities before client are been offer the tender to sale.

Credit can be offer to client who may pose a lot of difficulties in collecting the money on sales. Bad debt account would increase.

Inventory mismanagement due to stock out and back order.

Since the sale clerk received all incoming sales requisition, informs client of out of stock and is responsible to establish back order. The clerks can sale the stocks available for an initial client pick up to instant clients and make a new backup order to the original clients.

Inventory availability and reorder level need to be consistently updates with the current demand rate. This would help Macro to place stock reorder quickly to avoid stock out.

Macro alliance are dealing in an intense competitive market and the possibilities of client finding and alternative is very high which may lead to cancellation of back orders.

In appropriate segregation of duties between who takes the orders and who generate sale requisition

The possibilities of inaccurate imputation of orders and offsetting the inventory count in the system is very high and misleading. This is prone to serious misstatement of inventory.

Segregation of who received the sale order and who generate sale requisition should be initiated.

Manipulation and collusion among employees is prone to generate misstatement and incorrect records.

Delivery

The supervisor assigned a single warehouse clerk to fill in the order.

Counting physically is prone to error which maybe be misleading and inaccurate, thus increasing the risk of misstatement in the amount of inventory on stock

There should be at least two people involve in filling. One clerk can read out the order and another park it, then the reader can double check the order.

Inaccurate counting can occur either by filling less or more of items require.

Lack of segregation on who parks and make entries into the PC. It appears the same Warehouse clerk does all the above function.

Since it the same person that counts and needs to enter the order in the PC, its likely his error would not be identify leading to misstatement in the inventory at hand.

Segregation of duties should be made among who counts the inventory and who input the entries in the PC to avoid collusion or fraud.

Collusion and theft of inventory is likely especially when the same persons is responsible to count and enter the quantity in the PC.

A copy of the sales order used by the Warehouse clerk is discarded.

Misstatements are likely to go unnoticed since the sales order copy used by the warehouse clerk is destroyed. Any adjustment made on this original form used may not be accounted for, thus leading to inaccuracy of inventory.

Filling of all original document used is very important for Macro records. This record can be review in the future and is evident to audit when matching evidence of a specific transaction and trends.

Omission and error can occur and be difficult to identify if original records are discarded.

Marco Appliances Inc.

WP C.2.

Evaluation of Transaction Processing Control Design

Potential Control Weakness

Potential Misstatement

Recommended Correction

Possible Weakness

Billing

Segregation of duties is absent as Mr. Skye is responsibilities are to initials the delivery advice, reviews them, input records into the PC, access the sales recording software, Sales journal, account receivable ledger files.

Sales amounts maybe be wrongly date or recorded into the PC and review by same individual which would lead to misstatement in the sales records.

There should be separate individuals responsible for review and inputting data into the sale order records. There should be limited access to editing data into the PC.

Faulty data can be inputted. Fraud in the sales record, lack of access control.

The bookkeeper records only the gross sale and not the net sale.

Differences in accounting for net sale may be misleading. Gross sale records will give inaccurate sale totals and overstating sales figure.

All deductions made towards sale must be consider and recorded appropriately. All discounts or reward must be taken into consideration to help accountability.

Inaccurate sale discount may go unnoticed if the net amount is not recorded.

Sales are posted at gross amount to individuals customer account and the system automatically post monthly transaction into the general ledger.

Misstatements may arise due to lack of adjustments on discount or any deductions made, thus overstating or understating account receivable.

A review of daily sales transactions needs to be made before it is automatically posted to the general ledger

Inaccurate records of sale discount granted to clients may occur. Favoritism and collusion among employees and staff on inappropriate discount given.

Mr. Skye review on delivery advice and open sales is not by sequential numbering.

Misstatement and errors may occur if same client places same order twice with same period or range.

All delivery advice should carry a sequential numbering differentiating each order which would facilitate review with supporting documents.

Confusion and errors may occur and mixing of different order records maybe misleading.

Collections Management and Write-offs

The secretary has access to a read and write on Menu-driven software. This give the secretary access to input information, write off invoice and generate customer statements.

Intentionally written-off and manipulation of customers account is very likely.

Authentication controls and strict access control should be implemented. Limitations on what information can be edited should also be implemented.

Fictitious entries, fraud, inappropriate access and authentication control.

Ms. Amalia write-offs once every month end.

Inaccurate records for bad debt would lead to misstatement of the allowance account.

Consistent checks on the write-offs is important to avoid inaccurate allowance and lost to Macro.

Errors, improper estimate and judgement on amount to write off may occur.

Ms. Amalia solely makes all final decisions on customers credit and collection and write-off

Errors may go unnoticed, favoritism to some specific customer as their bad debt are written off. Credit maybe approved to incorrect customers.

Macro should involve another staff in the review of this process and management should periodically review Ms. Amalia judgement with questioning.

Bias judgement to write-off bad debt. Fraud can occur through collusion with customers.

Marco Appliances Inc.

WP C.2.

Evaluation of Transaction Processing Control Design

Potential Control Weakness

Potential Misstatement

Recommended Correction

Possible Weakness

Sales Returns

No verification is done by the Bookkeeper before PC entries are made on return items.

Misstatements may arise due to incorrect amount entered.

All returns items need to be counted and review to ensure the amount is correct and was purchase from Macro.

Incorrect entries are made.

If suppliers agree, damage items are destroyed, and allowance is granted to Macro on next purchase.

Incorrect accounts for damage goods may affect the receivable and may be misleading and accounted for wrongly. Measurement of allowance recorded may not be accurate.

Macro should have a measuring statistic to account for good dispose, in order to correctly record and adjust the receivable amount correctly. Records should be kept on dispose quantity and allowance as agreed by suppliers to be able to make complete adjustment in recording.

Customers may never be reimbursed if they do not repurchase. Unrecorded allowance maybe manipulated by employees for their benefit.

Sales returns are automatically entered the PC monthly.

Errors may go unnoticed and upset accounts, some may balance accounts accidentally.

Review of daily and weekly sales return by an employee before it auto post itself.

Computer errors may occur and affect the entire sales entries.

Cash Receipts

The receptionist single handily receives all mails, opens them, identify and endorses checks.

Inaccurate endorsement of checks may occur which may be misleading.

Separate the responsibilities of the receptionist and the cashier or accountant. The receptionist should not be allowed to open mails.

Endorsement to wrong accounts or department. Theft of checks

Harper Pink, the secretary prepares the bank deposit slip and takes the deposit to the bank.

Accuracy cash account errors and misstatement of amount on the deposit slip is likely to occur.

A third party should double check the deposit slip against the checks and totals to ensure it is accurate.

Collusion between the receptionist and the secretary is highly possible to defraud Macro.

Deposit slip is reconciled with sales invoice slips

Misstatement in total sales revenue account per bank deposit may occur.

All sales invoice should be reconciled with the list of checks and the deposit slip.

Check theft and collusion between receptionist and the secretary is possible.

Marco Appliances Inc.

WP C.2.

Evaluation of Transaction Processing Control Design

Potential Control Weakness

Potential Misstatement

Recommended Correction

Possible Weakness

Merchandise Purchases

Mr. Skye and Zen are responsible to set inventory reorder level.

Inventory reorder quantity may be inaccurate and misstated.

Macro should separate the duties between these two staff as one set the reorder level and the other review and confirm the quantity.

Collusion between Mr. Skye and Zen to steal inventory

Mr. Violet received PO #5 and places it in an unmatched purchase order file.

Errors and misstatements in accounting for inventory purchased. Possible overstating or understating errors in the payable accounts.

All documents need to be filed especially purchase orders as they are vital to review before making payments to suppliers.

Errors and confusion in reconciling payables account.

Copy four goes to the warehouse, with quantities omitted

Amount purchase would be misstated, inventory account to be received would be misleading.

All PO need to carry quantity because that is the only way the warehouse staff would confirm complete delivery is made.

Incomplete goods would be received and recorded.

Receipt of Goods

Counting and inspection of goods are limited only to external physical view and no quality review.

Damage goods account maybe wrongly recorded. Damage notification quantities to suppliers may be incorrect. Accounts payable maybe overstated.

All inspection should be both qualitative and quantitative to avoid Macro storing damage items.

Inaccurate account for damage items recorded. Damage goods are paid without noticed.

No segregation of duties, the warehouse clerk record quantity received, signs the receipt, and purchase order.

Misstatement in quantity recorded as received.

There should be separate staff on who verifies the goods, enters them and approved of item received.

Theft and collusion are highly possible for invention received. Omission may go unnoticed.

Marco Appliances Inc.

WP C.2.

Evaluation of Transaction Processing Control Design

Potential Control Weakness

Potential Misstatement

Recommended Correction

Possible Weakness

Vouching and Recording Payables for Merchandise

Mr. Violet solely verifies purchase orders with unmatched supplier invoices daily and corresponding receiving advice.

Inaccurate expense errors and wrong accountabilities of expense and inventory account.

There should be separate reviews of expenses to Macro and its stock (Inventory). Its filling should also be strictly separated.

Wrong classification of accounts may occur. Expenses are different from inventory.

Macro PC automatically summarized and post vouchers monthly into the general ledger.

Errors and misstatement would affect the expense account

Review by an employee on a daily, weekly and monthly basis on vouchers posted with sequential numbering attention.

Possible PC errors go unnoticed. Inaccurate impact on expense account balances.

Same procedure is used for handling purchase of inventory and for expenses supplies.

Confusion in accounting and misstatements of records.

There should be some distinction in procedures and employees between how inventory is handled with normal office supplies.

Errors and wrong records of accounting.

Non-merchandise Purchases and Services Received

Lack of purchase order for utilities expenses.

Misstatement in recording expenses

All utilities should have a purchase order with sequential numbering.

Incorrect records of utilities. Employees may use Macro fund for personal benefit.

Mr. Violet is responsible for reviewing vendors invoices, match them up, test for accuracy, approves them and key in product quantity, price, date of receipt of goods, and discount information into an open voucher file on the computer.

Possible misstatements of expense due to errors in vendors accounts

There should be separation of duties on who reviews vendors records and who is allowed to input or edit vendors account

Fraud and collusion with vendors. Favoritism may likely occur.

Marco Appliances Inc.

WP C.2.

Evaluation of Transaction Processing Control Design

Potential Control Weakness

Potential Misstatement

Recommended Correction

Possible Weakness

Cash Disbursements

Ms. Kim can be offered a loan from prearranged lines of credit and authorization.

Misstatements, fraud, collusion and theft may occur in the line of credit

Strict review and authorization procedure should be in place in the credit line to stop inappropriate withdrawals.

Collusion and theft can generate between Ms. Kim and staff to defraud the Macro Appliance

Ms. Amalia and Mr. Zen signs the payment checks without checking with vouchers and supporting documents

Errors may be missed; overpayment is possible, and misstatement may go unnoticed in payable accounts.

Authorized personnel should not assume when signatories are required or should not base on familiarities. They should double check and ensure all supporting documents are intact.

Theft and errors may go unnoticed Collusion among personal may not be identified.

Daily payments are authorized without verification and review of supporting documents of the purchase.

Unauthorized and inaccurate supplier’s payment may be approved for payment. Payment maybe overstated or understated and approved.

Consistency checks should be made on all suppliers’ payments from when the purchase requisition is initiated to when they goods where delivered before approval.

Intentional fraud may bypass without noticed; unapproved suppliers may get paid.