Flowchart Analysis - Revenue, Purchasing & Payroll Functions
... order into our Legacy system. Orders that are entered online are automatically downloaded into Legacy and no manual work is done on them. Online customers have contract pricing so no edits are required. Job tickets, which contain all the necessary production information, a copy of the order, and samples of the copy, are printed and prepared for production. INTERNAL CONTROL WEAKNESS: One area of internal control weakness is the fact that no one in management reviews the pricing of each order and there is no set price for each product. Since commission to the sales rep is paid based on the pricing of the job, the possibility of collusion between the Customer Service Rep (CSR) and the Sales Rep can and has happened. There have been instances in the company’s past where the Sales Rep and CSR were caught “taking care” of each other. The Sales Rep was rewarding the CSR with little gifts to encourage them to look the other way when orders were sent in. Both employees were terminated and more control was put in place to ensure that other employees review each order for reasonableness before processing. At this point in the process, a decision is made regarding sales type, which helps determine where job cost will ultimately end up in the general ledger and is used to gauge productivity. We have two types of sales: plant jobs and mill jobs. Plant jobs are orders that we will be physically printed in our production facility. When a plant order is entered, a check of the inventory system is made to determine if there is enough stock on the floor. If there is, stock inventory is allocated from our inventory system to ensure that there will be materials on the floor to produce the job. If there is insufficient stock, a purchase order is cut to the vendor and the stock is ordered. Plant orders are then forwarded to the plant office for review and scheduling. Mill jobs are products that we don’t produce ourselves but that we buy from other companies and sell to our customers. For mill orders, a request for an estimate is done to find the best and cheapest supplier to buy the product from. After estimating, a purchase order is cut to the vendor who is supplying the product. When production jobs, which will be physically printed in our production facility, are entered, a check of the inventory system is made to determine if there is enough stock on the floor. If there is, stock inventory is allocated from our inventory system to ensure that there will be materials on the floor to produce the job. If there is insufficient stock, a purchase order is cut to the vendor and the stock is ordered. Plant orders are then forwarded to the plant office for review and scheduling. During the order entry process, it must be determined if the customer is in our database and if they have sufficient credit to support the size of the order. Our Legacy system has built-in search and edit capabilities to check for existing customers and compare order total to available credit line. The system also checks for past due invoices and requires Finance approval for any customer with invoices older than 58 days or that does not have enough credit to support the order. Once all Finance checks have been completed, the order can be finalized and moved to production or estimating. INTERNAL CONTROL WEAKNESS: Although the system does check and alert the CSR that a customer is either past due or over their credit limit, there is no physical stop to prevent them from proceeding with entry of the order. It is the CSR’s responsibility to bring the order to Finance for approval, but there have been instances when this has not occurred. For plant orders, stock receipts are matched to the purchase orders and received in the system, which adds the stock to the inventory system. The vendor invoice for stock is paid through A/P and material cost is updated in the G/L. Once the product has been printed, it is sent to the shipping department. There it is given one final inspection to ensure that the printed product matches the ordered product and it is shipped to the customer. Shipping documentation (either through UPS or a trucking company) is produced to verify that the job has indeed left our building and to justify the shipping charge that is added to the invoice. The exact quantity that is shipped is verified and added to the job ticket. The job ticket is then returned to Finance for billing to our customer. The customer’s A/R file is updated the evening after billing during our nightly “send” process. Mill jobs are handled a little differently. Most of our mill products are shipped directly from the vendor to the customer so we do not have in-house shipping documentation. We rely on our vendors’ invoicing as proof that the product has been shipped and the job is complete. Once we have the vendors’ invoice, we receive the job against the purchase order that was issued and pay the vendor. At this point, we also bill our customer, by verifying the quantity that our vendor has billed us is what we are billing our customer and add any additional freight charges during the billing process. The vendor’s A/P file and the customer’s A/R file, as well as the General Ledger, are updated during the overnight “send” process. A/P vouchers are processed locally, but the checks are batched, cut, and mailed from our HQ in Atlanta. This eliminates local A/P personnel from handling vendor checks. INTERNAL CONTROL WEAKNESS: By relying solely on our vendor’s invoice as proof of shipment, there is no available proof what product was produced and shipped. Instances have arisen where vendors erroneously sent us invoices for product that never left their facility. This has occurred for a variety of reasons, from a simple mistake to a vendor trying to make their month-end sales numbers. More care and an updated validated process should be employed to firmly backup invoicing to customers. Cash (check) payments from customers are sent to our lockbox in Atlanta, GA. Our corporate bank handles the retrieval of the checks from the lockbox, the cashing of the checks, and the submission of a daily data file to our HQ. This data file contains the invoice numbers and associated dollar amounts paid on each check. This information is matched to our open A/R during our nightly “send” process and any checks that exactly match in both invoice number and dollar amount are automatically cleared from the customer’s A/R. This process eliminates most of the manual work associated with keying cash, as well as taking the cash-handling function out of the hands of company employees. The percentage of errors is very small and 90 percent of all checks are applied without any human intervention. INTERNAL CONTROL WEAKNESS: The roughly 10 percent of all customer payments that come in from our lockbox do require some sort of personal attention. The payments did not clear through the automatic clearing process due to either a shortpayment from invoice amount or unidentifiable remittance information. Due to staff reductions, the person who is responsible for manually clearing those customer payment that are not automatically applied is the same person who bills the customers. Removal of this task to another employee will solve the control weakn...