The following is a list of 15 control plans.
Control Plans
A. Sales order tickler file in billing
B. One-for-one checking of sales order and shipping notice by shipping department personnel
C. Confirming customer balances regularly
D. Entering shipping notice close to location where order is shipped
E. Checking for authorized prices, terms, freight, and discounts
F. Hash totals (e.g., of customer ID numbers)
G. Computer agreement of batch totals
H. Manual agreement of batch totals
I. Batch sequence check
J. Key verification
K. Written approvals
L. Immediately endorsing incoming checks
M. One-for-one checking of checks and remittance advices
N. Immediately separating checks and remittance advices
O. Reconciling bank account regularly
Listed below are 10 system failures that have control implications. List the numbers 1 through 10 on your solution sheet. Next to each number, insert one letter from the preceding list corresponding to the control plan that would best prevent the system failure from occurring. Also, give a brief (one- to two-sentence) explanation of your choice. A letter should be used only once, with five letters left over.
System Failures
1. Once goods are delivered to the common carrier, the shipping system at Goodtimes Video Corp. prepares a three-part shipping notice. Copy 2 of the notice is sent to billing to initiate the billing process. Many shipping notices have either been lost in transit or have been delayed in reaching the billing section.
2. A dishonest order entry clerk bypasses the credit-checking procedures every time a customer order is received from his brother-in-law's firm. The clerk releases sales order copies to the warehouse and to the shipping department without submitting the orders to the credit department.
3. Because the mailroom clerks at Laxx Company do not take batch totals of incoming customer checks, the cashier has misappropriated several thousand dollars over the years by depositing company checks to his personal bank account
4. Potpourri Merchandising Mart uses periodic processing for entering sales invoice inputs and updating customer accounts. Although it uses certain batch total procedures, Potpourri has experienced a number of instances of recording sales invoices to incorrect customer accounts.
5. The billing department at Gerrymander Corp. employs batch processing and uses prenumbered invoice documents. Nevertheless, a number of duplicate invoice numbers has been processed, resulting in numerous customer complaints.
6. Because Abraham Co. had been privately owned for years, it had never undergone an independent audit. When Abraham finally went public, the Securities and Exchange Commission required an audit of its financial statements. As part of its audit, the independent CPA firm found a large discrepancy between the accounts receivable general ledger balance and the underlying details of individual customer balances.
7. At Jonquil, Inc., billing sends shipping notices to the data entry group in data processing, where they are keyed into the computer. During the last month, an inexperienced data entry clerk made several errors in keying the shipping notices. The errors were discovered by the internal auditors as part of their routine examination of the data processing department.
8. Sales at Defrod Corporation have declined considerably over those of the preceding year. In an effort to improve the financial statements, the vice-president of finance obtained a supply of blank shipping notices on which she fabricated 100 fictitious shipments. She submitted the fictitious documents to the billing department
9. The mailroom at Whipoorwill Co. forwards checks and remittance advices to the accounts receivable department. A clerk checks the remittance advices against open invoices, as reflected in the accounts receivable master data. It is not uncommon for the clerk to note discrepancies, in which case the customer is contacted in an effort to reconcile the differences. Once all the discrepancies have been investigated and cleared, the accounts receivable clerk releases the checks to the cashier for deposit.
10. Clerks in the billing department at Abacus Enterprises, Inc., prepare sales invoices from a copy of the packing slip received from the shipping department. Recently, the company has experienced a rash of customer complaints that the customers have been billed for freight charges, despite the fact that they were promised free shipping.