|
I. Risk Matrix
|
|
|
|
|
|
Control Objectives
|
Risk Description
|
Control Activities
|
Evaluation
|
Recommendations
|
|
Customer pricing is accurate and supports company goals for profitability and growth
|
Pricing is set to a level that does not meet company goals for profitability and growth.
|
C1: Authorization: All price lists and changes to price lists must be approved by the CFO and the VP of Marketing and Sales.
|
Control is adequate to ensure objective is met.
|
Because control is central to all pricing activities, test compliance with the control and effectiveness of the control.
|
|
Customer contact information and assigned terms are accurate for efficient processing and quality service.
|
Incorrect information or customer duplication results in inaccurate shipping/terms, which leads to poor quality of service, and possibly revealing discounts not initially offered to the customer.
|
C2: Authorization: All new customer forms must be approved by the CFO and VP of Marketing and Sales.
|
Control for terms is adequate. Risk of customer duplication in the system is low if the system compares new information against current identifying factors.
|
Verification of customer shipping and receiving information would provide further assurance that shipment of product is successful.
|
|
Credit limits are appropriately assigned to customers minimizing FFF’s account for uncollectables
|
Approving clients for credit with poor credit history, or approving clients for too high of a credit line is likely to result in FFF having to write off higher amounts of receivables as uncollectable in the future.
|
C3: Proper Credit Approval: All new customers must be reviewed for credit approval for a credit limit and approval must be signed off on by the credit manager.
|
Control for credit approval and set-up is adequate.
Controls for access to adjusting credit line is inadequate.
|
Customer Service does not need to have access to adjust customer’s credit limit. It appears that there is a system obstacle: access to “customer change transaction” opens access to adjusting the credit line. Verify if there are system controls that can restrict access to this feature, if not, routine verifications of credit limits will need to be implemented.
|
|
Sales orders are valid and accurate enabling FFF to process orders efficiently keeping costs low and customer service high.
|
Invalid and/or inaccurate orders result in wasted time and money for FFF.
|
C4: Valid Sales Orders: Sales orders can be input into the system by any CSR and/or the CS supervisor.
|
Controls for creating a sales order are adequate.
Controls for receiving orders accurately are inadequate.
|
Continue searching for an EDI that FFF can use for accepting orders. Orders via fax and telephone open the door for: a) not receiving an order from a client, b) taking down the order incorrectly. This is a result of not having a reliable paper-trail for the orders, which can be easily remedied.
|
|
The picking of product for shipments is accurate and efficient.
|
Product on a pick list is excluded in a shipment, and/or is incorrectly adjusted in the ERP system. Duplication of shipments is also a possibility resulting in lost assets for FFF.
|
C5: Shipping Process: Proper “picking” of shipments.
ERP system ensures available stock prior to forwarding pick list to the warehouse.
Warehouse personnel initials each product line on the pick list.
Only warehouse and shipping personnel are allowed to print pick lists.
Reconcile BOL with pick lists
|
Controls of signing out picked product in the warehouse are adequate.
Controls for the transfer of product from the warehouse to the shipping department are adequate.
Controls for shipping duplication/oversight are inadequate.
|
Pick lists should be printed on pre-numbered forms ensuring that no list can be misplaced, overlooked, or duplicated. Red flags would be raised if the numbers were out of sequence or had two pick list numbers assigned to one order. Pick lists should be printed in a secure location rather than on a printer that all warehouse employees have access to.
|
|
Invoices are processed accurately and in a timely manner.
|
Invoices do not batch successfully, are misplaced after printing, or do not match what was shipped.
|
C6: Billing
A system administrator at FFF headquarters is the only one able to adjust batches of invoices.
Billing clerk mails invoices.
Printed invoices are automated and stored in a locked room
|
Controls for mailing invoices are adequate with the separation of duties.
Controls for invoice security are adequate assuming the door remains locked when unattended.
Controls for accurate invoices are inadequate.
|
Test that controls in place are adhered to.
Have invoices be compared against BOL/Shipping label.
|
|
Cash receipts are accurately applied to customer accounts to support the collections department, and maintain accurate information in the company books.
|
Receivables are incorrectly applied to a customer account resulting in the wasted time of the collections department and inaccurate books.
|
C7: Cash Receipts
Cash payments, supporting documentation, and original invoices are matched before applying cash to an account.
Reconciliation is restricted to cash appliers and credit and collections managers.
|
Controls surrounding payment reconciliation are adequate.
Controls for payment reconciliation for payments unaccompanied by an account number/information are inadequate.
|
Have second round of verification for payments unaccompanied by account information, or short-paid invoices.
|
|
Holds are placed on accounts at appropriate times and customers are contacted in a timely manner.
|
Customers in a default status are not contacted in a timely manner resulting in receivables that have become uncollectible.
Credit is continued to be offered despite a past-due account that has not been addressed.
|
C8: Collections
Credit representatives have ability to put an immediate hold on an account
|
Controls for access to creating credit holds are inadequate.
|
Restrict the ability to place/remove a hold on an account from customer service.
Run a specified aging report daily to ensure timely attention is provided to past-due accounts.
|
|
Unpaid invoices are properly addressed prior to writing-off funds as uncollectable
|
Accounts are written off as uncollectable without the proper research applied to them resulting in lost income for FFF
|
C9: Write-Offs
Credit representatives must first make contact with the customer before writing off debt as uncollectable
|
Controls for creating a debit/memo are inadequate
|
Creation of a credit/debit memo should be restricted to only management.
|
|
Reserves are properly applied for cash discounts, warranties, and write-off’s preventing the company from having to unexpectedly adjust income
|
Reserves are inadequate for covering uncollectables and warranties, affecting the company’s estimated and reported net income.
|
C10: Reserves
Reserves are analyzed monthly by a financial analyst where proper reserve amounts are calculated and reviewed.
Only financial analysts can input journal entries for reserve accounts.
|
Controls for verifying proper reserve amounts and processing reserve accounts are adequate.
|
Verify that controls in place are adhered to.
|
|
II. Test Plan
|
|
|
|
|
|
Control Activities
|
Test Procedure
|
Approximate Population
|
Sample Size
|
Sample Selection Method (details)
|
|
C1: Authorization: All price lists and changes to price lists must be approved by the CFO and the VP of Marketing and Sales.
|
1. Review price list support for approvals by the CFO and VP of Marketing and Sales.
|
2
|
2
|
Small, critical population. Review all price lists
|
|
|
2. Review the Excel spreadsheet supporting the price list. Check for accuracy.
|
|
|
|
|
|
3. Review performance indicators in the form of profitability reporting.
|
36 (monthly)
|
6
|
Review quarter-end and year-end for each year in scope (Q1 less likely subject to manipulation than year-end).
|
|
C2: Authorization: All new customer forms must be approved by the CFO and VP of Marketing and Sales.
|
1. Review the new customer form order to ensure it is filed out correctly by the sales departments.
|
36 (monthly)
|
15
|
Review haphazardly throughout the three years (5 from each year, if possible). Ensuring that protocol was followed for each new customer reviewed.
|
|
|
2. Review the new customer form order for proper approval by the CFO & VP of Marketing and Sales.
|
36 (monthly)
|
15
|
Per review above, look for proper approval on all samples selected.
|
|
C3: Proper Credit Approval: All new customers must be reviewed for credit approved for a credit limit and approval must be signed off on by the credit manager.
|
1. Review the credit approval process and procedures to ensure that guidelines are being followed for proper approval.
|
36 (monthly)
|
15
|
Review haphazardly throughout the three years (5 from each year, if possible). Ensuring that protocol was followed for each new customer reviewed.
|
|
|
2. Review the approval documents for management’s approval.
|
36 (monthly)
|
15
|
Per review above, look for proper approval on all samples selected.
|
|
C4: Valid Sales Orders: Sales orders can be input into the system by any CSR and/or the CS supervisor.
|
1. Match sales orders with shipping receipts (pick lists) back to customer database to ensure that a) the order is valid and the customer exists.
|
36 (monthly)
|
21
|
Choose 7 high dollar sales orders from each year. Review 3 at interim and then 4 at year end.
|
|
|
2. Review that orders are being matched against customer’s credit limit to ensure that proper policies are being followed.
|
36 (monthly)
|
21
|
Per review above, ensure that proper credit limits are followed.
|
|
C5: Shipping Process: Proper “picking” of shipments.
|
1. Review the pick list to verify the initials belong to an approved picker.
|
36 (monthly)
|
15
|
Review haphazardly throughout the three years (5 from each year, if possible).
|
|
|
2. Vouch shipments back to customer sales orders (quantities, pricing, terms). Test for period cut-off.
|
36 (monthly)
|
21
|
Choose 7 high dollar sales orders from each year. Review all at year end for proper period cut-off.
|
|
|
3. Observe warehouse personnel picking and packing goods for distribution to customers. Validate that picking and packing documentation match.
|
36 (monthly)
|
9
|
During observation choose at random any 9 documents.
|
|
|
|
|
|
|
|
C6: Billing
|
1. Observation of billing clerk review of invoices. Inspect for documentation/ prompt from shipping department that goods are shipped prior to generation of billing invoice. Check for content and pricing accuracy.
|
36 (monthly)
|
9
|
During observation choose at random any 9 documents.
|
|
|
2. Confirmation letter with either billed amounts to customers, or blank amounts for customer to complete. Compare responses with company invoicing and billing data for customer.
|
36 (monthly)
|
15
|
Test confirms at year end to ensure receivables are accurate.
|
|
|
3. Vouch billing invoices from customer sales order to billing. Recompute applicable discounts given to customer. Check for cut-off.
|
36 (monthly)
|
15
|
Test at year end to ensure receivables are accurate and that proper cut-off exists.
|
|
|
4. Review personnel duty and responsibility assignments for segregation of duties among Billing, Finance, Shipping, Credit Reps and Cash Receipt personnel
|
3
|
1
|
Done during walkthrough.
|
|
|
|
|
|
|
|
C7: Cash Receipts
|
1. Review the daily EFT report from the bank. Re-compute monthly bank reconciliation
|
36 (monthly)
|
The amount will be determined based on the total bank accounts that exist.
|
Review all bank recs at year end.
|
|
|
2. Tracing payments by customer to purchase order.
|
36 (monthly)
|
21
|
Choose 7 high dollar sales orders from each year. Review all at year end for proper period cut-off.
|
|
|
3. Review personnel duty and responsibility assignments for segregation of duties among Billing, Finance, Shipping, Credit Reps, Customer Service and Cash Receipt personnel
|
3
|
1
|
Done during walkthrough.
|
|
C8: Collections
|
1. Test aging account receivables that meet the conditions of a credit hold on account due to short or non-payment. Inspect documentation.
|
36 (monthly)
|
18
|
Choosing high dollar amounts, test at year end to ensure receivables are accurate and that proper cut-off exists.
|
|
|
2. Review personnel duty and responsibility assignments for segregation of duties among Billing, Finance, Shipping, Credit Reps, Customer Service and Cash Receipt personnel
|
3
|
1
|
Done during walkthrough.
|
|
C9: Write-Offs
|
1. Trace write-offs from sales order to write-off amount. Re-compute write-off amount for accuracy.
|
36 (monthly)
|
18
|
Choosing high dollar amounts, test at year end to ensure accuracy.
|
|
|
2. Test aging account receivables that meet the conditions of a credit hold on account due to short or non-payment. Inspect documentation.
|
36 (monthly)
|
18
|
Choosing high dollar amounts, test at year end to ensure receivables are accurate and that proper cut-off exists.
|
|
|
3. Review personnel duty and responsibility assignments for segregation of duties in Finance department
|
3
|
1
|
Done during walkthrough.
|
|
C10: Reserves
|
1. Recompute reserves allocated
|
36 (monthly)
|
9
|
During observation choose at random any 9 documents.
|
|
|
2. Review the approval documents for finance manager's approval.
|
36 (monthly)
|
9
|
During observation choose at random any 9 documents.
|
walali1
wiki_group_sol.docx
0
