Problem
Identify the control weaknesses at Steeplechase, and make a specific recommendation to remedy each weakness.
Steeplechase Enterprises
In reviewing the processes, procedures, and internal controls of one of your audit clients, Steeplechase Enterprises, you notice the following practices in place:
Steeplechase has recently installed a new computer system that affects the accounts receivable, billing, and shipping records.
A specially identified computer operator has been permanently assigned to each of the functions of accounts receivable, billing, and shipping. Each of these operators is assigned the responsibility of running the program for transaction processing, making program changes, and reconciling the computer log.
In order to prevent any one operator from having exclusive access to the tapes and documentation, these three computer operators randomly rotate the custody and control tasks every two weeks over the magnetic tapes and the system documentation.
Access controls to the computer room consist of magnetic cards and a digital code for each operator. Access to the computer room is not allowed to either the systems analyst or the computer operations supervisor.
The documentation for the EDP system consists of the following: records layout, program listings, logs, and error listings.
Once goods are shipped from one of
Steeplechase's three warehouses, warehouse personnel forward shipping notices to the accounting department. The billing clerk receives the shipping notice and accounts for the manual sequence of the shipping notices. Any missing notices are investigated.
The billing clerk also manually enters the price of the item, and prepares daily totals (supported by adding machine tapes) of the units shipped and the amount of sales. The shipping notices and adding machine tapes are sent to the computer department for data entry.
The computer output generated consists of a two-copy invoice and remittance advice and a daily sales register.
The invoices and remittance advice are forwarded to the billing clerk, who mails one copy of the invoice and remittance advice to the customer and files the other copy in an open invoice file, which serves as an accounts receivable document. The daily sales register contains the total of units shipped and sales amounts. The computer operator compares the computer-generated totals to the adding machine tapes.