Revenue cycle of the Motherboards and More Pty Ltd involves four major stages where entry of sales order is the first stage which includes receiving of orders from the customers through various sources after which packaging and shipment of ordered goods is initiated by the company at the second stage. Once the shipment process is completed, management of the company initiates with the billing process to issue invoices to the customers with whom deals are closed. As all the sales are made on credit basis the final stages ends with the ultimate collection of cash from the customers.
Internal Control Weaknesses of Company
Internal control weakness is the absence of strong and adequate controls in the areas of necessary operations of an organisation. The areas where deficiencies in the internal controls are found are as follows:
Inventory management: The inventory maintained by the company is not physically verified on a periodic basis and also there is no stock count taken by the management of the company since last two years.
Order shipments: The orders accepted from the customers were not shipped on the timely basis due to lack of stock. Since the stock availability is not checked before accepting the order, the required inventories were assumed to be lying in the stores where these actually were not available.
Erroneous deliveries: As the sales orders were increased it led to wrong deliveries of the goods to the customers.
The weaknesses in internal controls can indirectly affect the company’s performance to a great extent as it hinders the functioning of important business processes and the employees (Bedard & Graham, 2011). Internal controls deficiencies can affect the company’s profitability due to reduction in the turnover level as it will lose its customer base due to improper and erroneous delivery of the outputs. It may also degrade the confidence level of company’s customers thereby affecting its goodwill adversely (Rice & Weber, 2012). Moreover, the weakness in the internal controls will also influence the auditor’s report negatively as a result of which the company will invite various interventions from government and other regulatory bodies (Kuhn & Sutton, 2010).
The inventories lying in the warehouses must be physically verified at reasonable intervals so as to avoid the stock out position and to execute the customer’s order in time. If there occurs any deviation between the inventory records maintained by the management and actual inventory counts, it needs to be checked and corrected. The company must ensure the availability of stock before accepting the sales order. The internal auditor must look at these matters carefully and should report to the management about the deficiencies in the internal controls along with required recommendations (Lin et al., 2011). Also, the strong internal controls must be implemented in the areas of shipment and the delivery of goods. There must be clarity of responsibilities and duties among the management people about the task assigned to them so as to improve the quality of services provided by the company to the customers through adequate and timely provision of merchandise ordered by the customers.
The company must also hire more managerial personnel for its crucial functions so that the errors and faulty deliveries could be reduced. The employees must be adequately trained to handle excessive demands from customers and to keep an updated track of order processing so that the delayed execution of orders can be avoided.
Ransomware was a malicious computer program which was attached to various spam mails that contained files and documents which seemed to be important for the users. The malware entered the user’s computers through the e-mail spam, encrypting the important files and other data kept thereon demanding ransom in the form of digital currencies to be paid to restore the access to the files and to save the important data files from getting leaked. The attack has hit huge number of computers across the world as the malware function targeted the computers which were using the old and the incompatible versions of Microsoft Windows (Mohurle & Patil, 2017).
It can easily be concluded that the proper implementation internal controls in place plays a vital role in the overall performance of the company. These controls helps the company to closely monitor the functioning of all the key operations and to improve them on a continuous basis. Strong internal controls not only enhances the profitability of the company but also maintains a goodwill of the company which helps it in avoidance of unnecessary governmental actions. Motherboard and more must ensure the application of necessary and appropriate controls in the key areas such as inventory management, the management of shipment and the delivery processes as these are the crucial functions for the company. Also to prevent itself from the external risk factors such as ransomware attack, the company must strive to strengthen the internal controls in the areas of information system management.
Bedard, J. C., & Graham, L. (2011). Detection and severity classifications of Sarbanes-Oxley Section 404 internal control deficiencies. The Accounting Review, 86(3), 825-855.
Brewer, R. (2016). Ransomware attacks: detection, prevention and cure. Network Security, 2016(9), 5-9.
Kuhn Jr, J. R., & Sutton, S. G. (2010). Continuous auditing in ERP system environments: The current state and future directions. Journal of Information Systems, 24(1), 91-112.
Lee, J. K., Moon, S. Y., & Park, J. H. (2017). CloudRPS: a cloud analysis based enhanced ransomware prevention system. The Journal of Supercomputing, 73(7), 3065-3084.
Lin, S., Pizzini, M., Vargus, M., & Bardhan, I. R. (2011). The role of the internal audit function in the disclosure of material weaknesses. The Accounting Review, 86(1), 287-323.
Mohurle, S., & Patil, M. (2017). A brief study of Wannacry Threat: Ransomware Attack 2017. International Journal, 8(5).
Rice, S. C., & Weber, D. P. (2012). How effective is internal control reporting under SOX 404? Determinants of the (non?) disclosure of existing material weaknesses. Journal of Accounting Research, 50(3), 811-843.
Sittig, D. F., & Singh, H. (2016). A socio-technical approach to preventing, mitigating, and recovering from ransomware attacks. Applied clinical informatics, 7(2), 624.
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