In reviewing the processes, procedures, and internal controls of one of your audit clients, Veronica Corporation, you notice the following practices in place. Veronica has recently installed a new electronic data processing (EDP) system that affects the accounts receivable, billing, and shipping records. The company identified a computer operator who is permanently assigned to each of the functions of accounts receivable, billing, and shipping. Each of these computer operators is given the responsibility of running the program for transaction processing, making program changes, and reconciling the computer log. To prevent an operator from having exclusive access to the tapes and documentation, the computer operators randomly rotate the custody and control tasks every two (2) weeks over the magnetic tapes and the system documentation. Access controls to the computer room consist of magnetic cards and a digital code for each operator. Moreover, the system analyst and the computer operation supervisor are not allowed to access the computer room. The documentation for the EDP system consists of the following: record layouts, program listings, logs, and error listings. Once goods are shipped from one of Veronica’s three (3) warehouses, warehouse personnel forward shipping notices to the accounting department. The billing clerk receives the shipping notice and accounts for the manual sequence of the shipping notices. Any missing notices are investigated. The billing clerk also manually enters the price of the item and prepares daily totals, which are supported by adding machine tapes of the units shipped and the amount of sales. The shipping notices and adding machine tapes are sent to the computer department for data entry. The computer output generated consists of a two-copy invoice and remittance advice, and a daily sales register. The invoices and remittance advice are forwarded to the billing clerk, who mails one copy of the invoice and remittance advice to the customer and files the other copy in an open invoice file, which serves as an accounts receivable document. The daily sales register contains the total of units shipped and sales amounts. The computer operator compares the computer-generated totals to the adding machine tapes. Question: Are all the controls implemented by Veronica Corporation adequate? If not, cite at least two (2) control weaknesses that are present.
In reviewing the processes, procedures, and internal controls of one of your audit clients, Veronica
Corporation, you notice the following practices in place. Veronica has recently installed a new electronic
data processing (EDP) system that affects the
company identified a computer operator who is permanently assigned to each of the functions of
accounts receivable, billing, and shipping. Each of these computer operators is given the responsibility
of running the program for transaction processing, making program changes, and reconciling the
computer log. To prevent an operator from having exclusive access to the tapes and documentation,
the computer operators randomly rotate the custody and control tasks every two (2) weeks over the
magnetic tapes and the system documentation. Access controls to the computer room consist of
magnetic cards and a digital code for each operator. Moreover, the system analyst and the computer
operation supervisor are not allowed to access the computer room.
The documentation for the EDP system consists of the following: record layouts, program listings, logs,
and error listings. Once goods are shipped from one of Veronica’s three (3) warehouses, warehouse
personnel forward shipping notices to the accounting department. The billing clerk receives the shipping
notice and accounts for the manual sequence of the shipping notices. Any missing notices are
investigated. The billing clerk also manually enters the price of the item and prepares daily totals, which
are supported by adding machine tapes of the units shipped and the amount of sales. The shipping
notices and adding machine tapes are sent to the computer department for data entry.
The computer output generated consists of a two-copy invoice and remittance advice, and a daily sales
register. The invoices and remittance advice are forwarded to the billing clerk, who mails one copy of
the invoice and remittance advice to the customer and files the other copy in an open invoice file, which
serves as an accounts receivable document. The daily sales register contains the total of units shipped
and sales amounts. The computer operator compares the computer-generated totals to the adding
machine tapes.
Question: Are all the controls implemented by Veronica Corporation adequate? If not, cite at least two
(2) control weaknesses that are present.
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