Ronnie's Riders manufactures custom bicycles since 1999. The company is located in Steamboat, Colorado and employs about 120 people. Customers may order bikes from select dealers, over the internet or at the Steamboat storefront. The company has an established network of suppliers. It is entering its busy season (spring) and is running at capacity, however, with a several week backlog of orders. It relies on several computer programs to run its operations and processes are summarized as follows:
• Sales orders - sales representatives receive custom orders via fax, internet, mail, etc. They must review the customer's measurements/requirements and prepare a manual quote. Upon acceptance, they enter the info into the computer systems to create a sales order, the first copy of which goes to billing, the second to the factory, and the third to is kept in the sales dept with the customer's order in an open order file.
• Billing - the billing clerk uses the first copy of the sales order to prepare the invoice, sending one copy to the customer and keeping one copy as reference to update the sales and AR journals. Daily, the clerk sends hard copies of the journals to the senior accountant for the purpose of updating the general ledger.
• Production - the production clerk uses the second copy of the sales order to set a production date and order materials. She prepares one copy of the materials requisition form and two copies of the production form. The first copy of the production form is sent to sales to match to the sales order and to inform the customer of the expected production date. The second copy of the production form and the materials req form are filed in the factory. When production is upcoming, the line manager forwards the materials req form to the warehouse for the raw materials and supplies needed to produce the order. The warehouse clerk updates the computerized inventory account and at the end of the day sends a hard copy inventory report to the senior accountant to update the general ledger. When finished, the bike and the second copy of the production order are sent to the warehouse for shipping. The warehouse clerk received the bike and paperwork and packs the bike for shipping; manually preparing a stock release document and forwarding the bike and document to the shipping department.
• Shipping - on the day of shipment, the loading doc uses the stock release doc to prepare three copies of a bill of lading and one packing slip. Two copies of the bill of lading and the packing slip go with the bike to the carrier. The remaining copy of the bill of lading is sent to the sales department to match with and close the customer order.
• Cash receipts - customer payments are received in the Steamboat mailroom. The mailroom clerk opens the payments and prepares three copies of the remittance list. The first copy of the list and the checks are sent to the CR department where they are recorded in the CR journal. The clerk then prepares the deposit for the bank, with two copies of the deposit slip. The second copy of the remittance list is sent to billing, where the AR clerk logs the payments into customer accounts. The third copy of the remittance list is sent to the general ledger clerk who updates the AR control and cash accounts.
Required
6. Create a system flowchart of the current system
7. Analyze the physical internal control weaknesses of the current system under the COSO framework