Compare and contrast the following three frameworks: COBIT, COSO Integrated Control, and ERM.
PriceRight Electronics (PEI) is a small wholesale discount supplier of electronicinstruments and parts. PEI's competitive advantage is its deep-discount, three-daydelivery guarantee, which allows retailers to order materials often to minimize in-storeinventories. PEI processes its records with stand-alone, incompatible computer systemsexcept for integrated enterprise resource planning (ERP) inventory and accountsreceivable modules. PEI decided to finish integrating its operations with more ERPmodules, but because of cash flow considerations, this needs to be accomplished on astep-by-step basis.
It was decided that the next function to be integrated should be sales order processingto enhance quick response to customer needs. PEI implemented and modified a commerciallyavailable software package to meet PEI's operations. In an effort to reduce thenumber of slow-paying or delinquent customers, PEI installed Web-based software thatlinks to the Web site of a commercial credit rating agency to check customer credit at thetime of purchase. The following are the new sales order processing system modules:
• Sales. Sales orders are received by telephone, fax, e-mail,Web site entry, or standardmail. They are entered into the sales order system by the Sales department. If theorder does not cause a customer to exceed his credit limit, the system generates multiplecopies of the sales order.
• Credit. When orders are received from new customers, the system automaticallyaccesses the credit rating Web site and suggests an initial credit limit. On a daily basis,the credit manager reviews new customer applications for creditworthiness, reviewsthe suggested credit limits, and accepts or changes the credit limits in the customerdatabase.
On a monthly basis, the credit manager reviews the accounts receivableaging report to identify slow-paying or delinquent accounts for potential revisions toor discontinuance of credit. As needed, the credit manager issues credit memos formerchandise returns based on requests from customers and forwards copies of thecredit memos to Accounting for appropriate account receivable handling.
• Warehousing.Warehouse personnel update the inventory master file for inventorypurchases and sales, confirm availability of materials to fill sales orders, and establishback orders for sales orders that cannot be completed from stock on hand.Warehouse personnel gather and forward inventory to Shipping and Receiving alongwith the corresponding sales orders. They also update the inventory master file formerchandise returned to Receiving.
• Shipping and receiving. Shipping and Receiving accepts inventory and sales ordersfrom Warehousing, packs and ships the orders with a copy of the sales order as apacking slip, and forwards a copy of the sales order to Billing. Customer inventoryreturns are unpacked, sorted, inspected, and sent to Warehousing.
• Accounting. Billing prices all sales orders received, which is done approximately5 days after the order ships. To spread the work effort throughout the month, customersare placed in one of six 30-day billing cycles. Monthly statements, preparedby Billing, are sent to customers during the cycle billing period. Outstanding carryforwardbalances reported by Accounts Receivable and credit memos prepared bythe credit manager are included on the monthly statement. Billing also prepares electronicsales and credit memos for each cycle. Electronic copies of invoices and creditmemos are forwarded to Accounts Receivable for entry into the accounts receivablemaster file by customer account. An aging report is prepared at the end of eachmonth and forwarded to the credit manager. The general accounting office staffaccess the accounts receivable master file that reflects total charges and creditsprocessed through the accounts receivable system for each cycle. General accountingruns a query to compare this information to the electronic sales and credit memo andposts the changes to the general ledger master file.
Questions;
a. Identify the internal control strengths in PEI's system
b. Identify the internal control weaknesses in PEI's system, and suggest ways to correct them.