This report is prepared for addressing the principal documentation, processes and records needed for the new sales and sales returns system. Principle risks will also be identified in the report. An effective internal control will be useful on addressing those risks, which will be helpful on making preventive and corrective measures. Works of auditor regarding to the new system will also be mentioned.
This report is for internal use only, no circulation between third parties is allowed.
Documentation, processes and records for the new sales and sales return system:
When the Sales department has received a sales order from customers, they have to fill in a form and ...view middle of the document...
When returned good is received, a sales returns notice will be issued to note the department that is handling customer records. Adjustments have to be made in inventory account and accounts receivables account. Customers will get refund for the goods returned, or the amount will be written off in accounts receivables if the return is within the credit period. All these records and documentations have to be submitted with the monthly inventory report to management.
All the source documents mentioned above will be sequentially numbered for record tracking.
Principal risks associated with the new sales and sales return system:
The new sales and sales return system may be under the risk of accounting errors. Wrong number input, and pending order or records are likely to happen. If people count inventory carelessly, it can provide an opportunity for fraud and theft. Collusion is also another essential issue that management has to be aware of. When the goods are received from returned goods department and offshore factory, it is the time which fraud and theft is most likely to happen.
An effective internal control will be able to address these risks. Firstly the management has to build a good control environment. If the management only cares about money and ignores the needs of employees, it might increase the risk of fraud and theft.
Focusing on the fraudulent activities happened before, management has to do ongoing monitoring of sales record and inventory level. Apart from the monthly inventory report, surprise inspection of inventory is also needed. Internal auditing department will do the inspection irregularly, different independent internal auditor will be appointed each time.
In addition, sales orders have to be compared to picking list, to make sure there is no omission of source documents. Monthly cash receipts report is also needed to compare the cash sales level. Authorisation of sales or credit is also important in an effective internal control system, this can reduce the risk of inventories being taken away by employees for resale. Access to inventory and sales system should...