Apollo Shoe Case

Apollo Shoes Case

Apollo Shoes

Memo

To: Management

From: Darlene Wardlaw

Date: 12/24/2012

Re: Revenue Cycle Problems

This memo is in regards to the features and deviations that were found after control tests on the company's statement.

We determined that a lot of information was missing. This includes transactions, bills were missing, some of the months were overstated and the testing that was completed was not the same overall. We have also noticed that there are delays or incorrect dates on invoices. This is concerning as it may lead to customers actually being overcharged or being undercharged. A process of approving credit is not in place. This can lead to credit being provided to customers who should not be credit worthy and in turn lead to financial issues. Another test showed that the company is not paying balances in full or on time. This can also lead the company into financial issues. Additional process will need to be put in place to correct these issues as well as segregate duties.

The results listed above have the possibility of causing a lot of issues in the area of finance for the company. If customers are overcharged and invoices are not paid in full these will lead to additional charges, late fees, credit no longer being offered, and credits back to the customers that were overcharged. If the customers are undercharged, there might not be a way to claim the additional funds that are due as the customer is only required to pay the amount listed on the invoice. These entire lists can and will most likely cause financial issues in the 4th quarter and in the years to come.

If these errors are eliminated, future financial statements and reports will have fewer errors in the months to come. In regards to the lack of credit approval being in place can show that the company is having financial issues. There is also a delay of months from when the invoices are sent and the credit memo is recorded is two months. This delay is too long and can definitely cause over and undercharges. This will cause a misstatement on financial reports as the data is missing for two months. It will also show transactions being placed in months that they are not truly being placed in. This can also cause issues with having balances not being paid on time as the transactions are not being recorded on time.

Additional software is needed to set in motion the proper internal controls and audits. A reason for this additional software is the company has a problem with sales invoices being recorded incorrectly as well as bills that are missing. If this is switched to additional computer software, it will create fewer errors and the data will have a higher percentage of accuracy. In the month of December sales were overstated. This can cause issues with the month being unable to balance and then finally at year end. The additional software can help hinder these issues.

Apollo Shoe Company has deviations that need to be looked into and corrected. The proper internal control methods can help to correct these issues, but additional testing will be needed to show all issues. Letters will be sent to both customers that have accounts greater and less than $1,000,000. If the accounts are greater than, it will be positive. If the account is less than this amount, it will be negative. We would also recommend auditing all customer transactions for the past year. This would be the transactions that are recorded within the company and then compare then to the transactions that the customers have placed. Each customer will need to be contacted individually to obtain this information. Once this is obtained and analyzed we will be able to determine the exact issues and path that needs to take place.

Darlene Wardlaw

Internal Control Questionnaire--Sales Transaction Processing

Assertions and Questions Yes, No, N/A

Comments

Occurrence assertion:

1. Is the credit department independent of the sales department? Yes Credit Manager in Treasurer's Office.

2. Are sales of the following types controlled by the same procedures described below? Sales to employees, COD sales, disposals of property, cash sales, and scrap sales. No Cash sales are treated with the same procedure as credit sales.

3. Is access to sales invoice blanks restricted? Yes Locked closet in the billing department.

4. Are pre-numbered bills of lading or other shipping documents prepared or completed in the shipping department? Yes Pre-numbered bill of lading is filled out by the contract truckers in the shipping department.

Completeness assertion:

5. Are sales invoice blanks pre-numbered? Yes The billing clerks produce a four-copy sales invoice on a pre-numbered invoice form.

6. Is the sequence checked for missing invoices? No They are removed only for billing clerk's immediate loading into a computer printer.

7. Is the shipping document numerical sequence checked for missing bills of lading numbers? No No information available

Accuracy assertion:

8. Are all credit sales approved by the credit department prior to shipment? Yes Credit manager checks accounts receivable balance and a computer based inquiry system.

9. Are sales prices and terms based on approved standards? No In the meeting minutes prices were being raised to compensate decreasing sales.

10. Are returned sales credits and other credits supported by documentation as to receipt, condition, and quantity, and approved by a responsible officer? Yes Approved by the Treasurer

11. Are shipped quantities compared to invoice quantities? Yes Shipping employee's check copy 3 with copy 4 before picking the order.

12. Are sales invoices checked for error in quantities, prices, extensions and footing, and freight allowances, and checked with customers' orders? Yes The items shipped shall be compared to the items billed for proper quantity, price, and other sales order terms.