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Internal Control Weaknesses

Overview of the Revenue Cycle from the CFO

Strings Pty Ltd (Strings) is a medium size, privately owned, Australian enterprise. They manufacture musical instruments and the parts required for their repair. Strings are the key supplier to music retailers and repairers across Australia. Strings is 12 years old and uses an integrated ERP system. The administrative offices are on the outskirts of town with the production, shipping, and receiving departments located just a few block away.

Customers place orders on the company’s website, via email, or by telephone. Due to a renewed interest in music, this year sales have increased significantly. All sales are on credit, with 17% of credit sales in the last 12 months needing to be written off as uncollectible. This included several large online orders to first-time customers who denied ordering or receiving the merchandise.

Customer orders are picked and sent to the warehouse, where they are placed near the loading dock in alphabetical sequence by customer name. The loading dock is used both for outgoing shipments to customers as well as receiving incoming deliveries. There are ten to twenty incoming deliveries every day, from a large number of sources.

The increased volume of sales orders has resulted in a large number of errors where customers have been sent the wrong items. There have also been delays in shipping as items that supposedly were in stock could not be found in the warehouse. Although a perpetual inventory is maintained, there has been no physical count of inventory for over two years. When an item is missing, the warehouse staff notes the information down in a log book. At the end of the week, the warehouse staff uses the log book to update the inventory records.

The system is configured to prepare the sales invoice only after shipping employees enter the actual quantities sent to a customer, thereby ensuring that customers are billed only for items actually sent and not for anything on back order. Terms of trade are payment within 21 days of invoicing, with a 2% discount offered for payments made within 5 days. Approximately 50% of Strings long standing repeat customers pay within the 5 days.

The CFO at Strings Pty Ltd (Strings) was impressed by the systems documentation you prepared for Assessment Item 2 and would like to engage you to provide some assistance in improving their Revenue Cycle, focussing only on the processes from order to invoicing.

Using the information provided to you by the CFO for Assessment Item 2, prepare a business report addressing:

What are the the internal control weaknesses in Strings Revenue Cycle?
What are the potential impacts of these weaknesses on the organisation?
What specific internal controls could be implemented by Strings in the coming weeks to mitigate the risks posed by the internal control weaknesses you have identified. Your CFO does not want theoretical controls suggested. He wants practical controls that they can implement within the organisation in the coming weeks.

The project to implement the Queensland Health Payroll System (2007-2011) is often considered to be one of the largest systems implementation failures in Australia.

Using the Systems Development Lifecycle process (figure 19.1 on page 612 of the Romney text) as a guide, identify 5 deficiencies in the Queensland Health Payroll System project, and provide recommendations on how these deficiencies may be overcome in future projects.

Internal Control Weaknesses

Internal control weaknesses in Strings Revenue Cycle

Following are the potential weaknesses into the revenue cycle of Strings such as:

In sales order: There are incomplete and inaccurate customer’s orders, and there are poor credit sales to the customers. This in sales order weakness is controlled by data entry edit checks along with accurate records of the account balance of customers. Digital signature is used for the e-business (Kreimer, 2015).

In shipping and delivery: There are errors into the shipping process due to wrong merchandise and theft into inventory. It is controlled by reconciliation of the sales order with the picking tickets, data entry application controls with proper documentation of internal transfer of inventory (Fernandez, Miller, & Carp, 2015)

In-billing and accounts receivable: There is failure to bill the customers along with billing errors. It is controlled by shipping as well as billing functions.

In cash collection: There are thefts of cash by any third party person who are present into the company (Wright, 2017). It is controlled by minimization of handling of cash by others rather than the access user, deposit of receipts as well as periodic settlement of the bank statements.     

Potential impacts of these weaknesses on the organization

Due to weakness of in sales order and large volume of sales orders result into errors where the customers are sent wrong items. It impacts the reputation of the Strings Pty Ltd into the manufacturing business of musical instruments and parts. Due to weakness into the revenue cycle, there is delay into shipping when items are not in stock and it is not found into warehouse. There is also no physical counting of inventory over two years (Singh, Mindel, & Mathiassen, 2016). At the time when items are missing, the warehouse staffs note down the information into the log book. There is potential impact on performance of revenue cycle. Quality as well as accuracy of the sales order may have impact on the organization’s operations and business. Weaknesses of revenue cycle impacts the business along with the customers of Strings Pty Ltd is time delay among the customer those receive the product and service when the customers can remit the payments (Colwell, 2105). Limitations into the business revenue cycle do not ensure to receive of expected payments and reasonable as well as predictable schedules. Revenue cycle impacts the organization by not allowing the third parties to involve into the payment processes.    

Potential Impacts of Weaknesses

Specific internal controls could be implemented by Strings

Internal controls are required in Strings Pty Ltd. as it helps to measure into place for protecting the assets, enhances the reliability into the accounting records along with increase into efficiency of business operations (Fielding, 2015). The organization is required to implement of system of internal controls over the financial reporting. Internal control system helps to prevent as well as detect the financial frauds in the organization. Documentation of entity procedures will help to sustain internal control system and help to train the employees on new job roles (Islam et al., 2017). Outside training of the board members, management as well as personnel helps to make sure that the internal control system stays with up-to-date with change into technology. The suggested internal controls which could be implemented by Strings are as follows:

Payroll: It ensures that the organization has delayed payroll calendar. It incorporates of review and authorization of the timesheets. Outsourcing of payroll processing is helped to mitigate the delay in delivery of services.

Accounts payable: It requires of pre-approval for the purchases on behalf of Strings. It also reviews the list of checks signers periodically. Accounts payable are kept into secured location with limited access. There are proper access to the accounts so that no others can access to it.

Bank reconciliations: There is preparation of bank reconciliations in proper manner. It ensures that the bank reconciliations are being prepared by someone rather than individuals those make the deposits and process accounts payable (Coyne, Coyne, & Walker, 2016). When it is not possible, identifying other employee for reviewing the competed bank reconciliations.

Five deficiencies in the Queensland Health Payroll System project

Following are the five deficiencies into Queensland Health (QH) Payroll System:

Historical payroll forms submission: The current degree of the QH payroll system is accommodated where as the staffs can submit the forms for completion of work completed within six years ago to create the payroll system performance issues (Karunarathna, 2015).

Overpayment and entitlements: As in the year 2012, QH overpaid $112.3 which is $16.5m has been paid as well as $3.3m waived, leaved $91m outstanding. Under the financial accountability act 2009, QH has obligations to recover the amounts. QH is required to fund the liabilities which are associated with overpayments as well as additional cost burden towards QH. There is overpayment of amount which is increased by approximately $1.7m per fortnight (Laudon & Laudon, 2016).

Specific Internal Controls for Mitigating Risks

Time between close of roaster and pay date: QH paid run commences before closure of roaster. There is requirement of decision making related to current pay date allowed for the pay run based on actual hours worked rather than the forecasted hours worked (Singh,,  Mindel, & Mathiassen, 2016). Change into pay date improves accuracy of the employment payment by allowing time to process roaster changes. It reduces number of underpayments as well as overpayments needed.

Financial issues: The system is not performing well with consequences of the employees of Queensland health and there are serious consequences for the state (Islam et al., 2017). Due to making of further implementation into the QH system, there are requirement of extra funds and cost which will be more than the estimated costs of the Queensland Health Payroll System Project.

 Upgrade and reimplementation of payroll: Into the QH environment, there are implementation of Workbrain and SAP system which are heavily customized along with not operating well into the business environment of Queensland Health. Customization of the system is considered as costly to manage, increase the issues as well as bad impact on the performance of system. QH has identified that there are expire of Workbrain and SAP system in the year 2014 as well as 2015 respectively (Singh, Mindel, & Mathiassen, 2016). There is required to make further investment into the system due to upgrade as well as reimplementation of the system before 2014.

After identifying the key issues which are addressed above, following are the recommendations which are suggested to prevent from the issues such as:

QH should accelerate approval for implementation of changes in pay date along with commences the business processes to implement of changes in pay date.

QH should take of measures to reduce degree of retrospectively built into current QH payroll processes by implementation of the change programs to reduce window for lodging the historical payroll forms.

 QH should commence work into SAP as well as award interpretation engine upgradation planning which includes of move of standard of SAP functionality which is currently within Workbrain into SAP. Into the planning activities, there are use of approach to target external market for explore the system as well as payroll operating systems which is available to QH includes of associated cost and benefits.

QH should accelerate approval for lifting QH recovery of the overpayments as well a commencement of processes for recovering the overpayments. There are changes into pay date improves accurateness of the service payment by allowing time to procedure roaster changes.


Colwell, J. (2015). Tech tools to aid with revenue cycle management. Medical economics, 92(23), 54-54.

Coyne, J. G., Coyne, E. M., & Walker, K. B. (2016). A model to update accounting curricula for emerging technologies. Journal of Emerging Technologies in Accounting, 13(1), 161-169.

Fernandez, P. M., Miller, J., & Carp, R. (2015). U.S. Patent No. 9,082,087. Washington, DC: U.S. Patent and Trademark Office.

Fielding, D. (2015). Integrate and automate RCM. How revenue cycle best practices helped one health system improve its financial performance. Health management technology, 36(6), 17.

Islam, K., CH, A. R., Bilal, A. R., & Ilyas, M. U. H. A. M. M. A. D. (2017). Accounting Information Systems: Traditions and Future Directions (By Using AIS in Traditional Organizations). The Journal of Internet Banking and Commerce, 22(2), 1-13.

Karunarathna, A. G. P. (2015). Payroll Management System(Doctoral dissertation).

Kreimer, S. (2015). The revenue cycle decision. Medical economics, 92(5), 45-6.

Laudon, K. C., & Laudon, J. P. (2016). Management information system. Pearson Education India.

Singh, R., Mindel, V., & Mathiassen, L. (2016, January). IT-Based Revenue Cycle Management: An Action Research into Relational Coordination. In System Sciences (HICSS), 2016 49th Hawaii International Conference on (pp. 3152-3161). IEEE.

Wright, K. (2017). Revenue Cycle and Reimbursement. Health Information Management: Principles and Organization for Health Information Services.

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