You are the senior on the audit of Smartpart (Pty) Ltd, acompany which wholesales a large range of motor vehicle accessoriesto garages, panel beating businesses and
   
specialist accessory shops. The company sells only on credit toaccount holders.
Smartpart (Pty) Ltd has expanded quickly over the past few yearsand the accounting system related internal controls are proving tobe inadequate. You have therefore requested various members of theaudit team to document the company's systems to enable to enableyou to evaluate them. One of your best trainees, Anton Goosen, haspresented you with the following narrative pertaining to certainfunctions in the revenue and receipts cycle.

Order receiving/sales authorisation

No aspect of the order receiving function is computerized.Orders are received by phone, or mail. Customers sometimes place anorder by phone and within two or three days send a written order toconfirm the phone order. When a customer phones, the call is putthrough to Eddie Mercs, the sales order clerk. On taking the call,if he does not recognize the voice of the caller, he asks name andconfirms that the customer has an account referring to an up-to-customers. This list reflects details. (He also has up to dateproduct price lists so that he is able to answer price queries.) lfEddie Mercs is satisfied that the caller is an account holder, hefills out a single part (original only, no copies) preprinted,prenumbered internal sales order (ISO) by inserting the customnumber (which he obtains from the customer list) and recording thedescription and quantity of the goods ordered on the ISO. At thispoint the telephone conversation is terminated. Eddie Mercs thencompletes the ISO by filling in the customer's name and deliveryaddress and signing it.

If the caller does not appear on the list of customers, (i.e. isnot an account holder) Eddi Mercs fills in a preprinted newcustomer form (NCF) by obtaining ( over the phone) thepostal/delivery address and contact details as well as the names ofthe business's bankers and two trade references. Eddie Mercs thencompletes the ISO in the normal manner with the exception ofinserting the customer;s account number.

All incoming mail is received by Pearl Pillay the receptionist who,assisted by one of the clerks from accounting, enters details ofall letters, customer orders etc in a mail register. She and theaccounts clerk both sign the mail register. she and the accountsclerck both sign the mail register. Whatever has been received isthen distributed. All customer orders go to Eddie Mercs, who makesout an ISO for each order, taking the details from the customerorder.
    
before he goes home at 4:30pm, Eddie Mercs places the day's ISO onthe stores controller, Kobus Marais' desk, and if there are anyNCF's, gives them to Precious Gumede, the senior debtorsadministrator. (She allocates an account number to the newcustomer, files the NCF and updates the customer list.)

Warehouse and Despatch   
Again no aspect of these functions is computerized. Each morningKobus Marais splits the between his two assistant storemen who pickthe goods ordered from the shelves. The goods picked are placed incardboard boxes with the ISO but the box is not sealed. As theitems are picked, the assistant storeman ticks them off on the ISO.If the quantity ordered is greater than the quantity on hand, thestoreman changes the quantity ordered on the ISO to the quantityactually picked. If the item ordered is completely out of stock,the ISO will be changed to 0 for that item. The assistant storemensign the ISOs once they have picked the items ordered. Once thegoods have been picked, they are moved to the despatch area. HawkeMathebula, the despatch clerk, extracts the ISO from the box andmakes out a preprinted, sequenced four part Delivery Note (DN),copying all details from the ISO onto the DN. He places the topcopy in the box, and addresses and seals the box. The 2nd copies,along with a delivery list, are ha boxes to be delivered againstthe copies of the despatch notes and delivery list as the boxes areloaded onto the truck. Hawke Mathebula attaches the ISO to the 3rdcopy of the DN and sends them (in well controlled batches) to theaccounting section for invoicing at a later stage. The 4th copy ofthe DN remains as a fast office in despatch.

YOU ARE REQUIRED TO identify and explain the weaknesses in theorder receiving/sales authorization and warehouse/despatchfunctions as described above.
Notes:
1. Your explanation should convey the reason why you believe theweaknesses identified are, in fact, weaknesses. 2. You are notrequired to make recommendations to address the weaknesses.

Subject: Auditing 2A