Winford Plc is a company that has been awarded a contract by Westriver Borough of operations of the local swimming pool. In order to manage the sales and revenue generated by the services offered, an accounting system, has been developed. The main components of the new system in relation to sales revenue and tickets from vending machines will include principal documentation, the processes involved and the records to be kept.
The Principal documentation of the new system will be made up of two parts. The first part is the user documentation. The main purpose of the user documentation is to assist the users of the system that is the non-technical staff. These types of people are not concerned with the technical operations of the system but just how to use the system. User documentation includes information on how to start the system, use the features of the system and error messages that might appear as you use the system.The user documentation of the ticket sales machine will explain the information that needs to be entered about the person buying the ticket. This will include the age of the client, the amount paid and the discount if any. All this information will be entered by the user of the system, in this case the staff and the purpose of the user documentation is to show the staff how to enter the information.
The second part of the documentation is the technical documentation which is intended for the technicians and the people who will be servicing the new accounting system. Technical documentation for this new accounting system will include information on data structures, datatypes,the expected input and diagrams showing the flow of data through the system from the time the information about a client is entered to the time a receipt is produced and how the vending machines will work. This will be used for repairs of the accounting systems and upgrades in the future.
The new accounting system will involve the following processes for the ticket machine. The first process is recording of information. The ticket machine will require information about the customer. The information that will be entered into the system includes the name of the customer for record purposes. The age of the customer which will be required for calculation of discounts where clients under the age of eighteen and those above the age of sixty five will be given discounts. The system will also record the ticket type that is whether it is a season ticket ,this type of clients are expected to account for 30% of the sales, or a single visit ticket and calculate the amount to be paid from this information. The process is complete with the issuing of a receipt to prove that the customer has paid for the swimming pool services.
The vending machine will involve the following process. Since no receipt is issued for sales madefrom the vending,the revenue collected will be calculated on regular intervals. This will be done by taking a stock count of the inventory at regular intervals. The interval will be determined in advance,and the calculation of the revenue from the vending machine will be as follows. The previous stock count will be subtracted from the current stock and the sales made will be multiplied by the price of each type of snack. The amount got will be the total sales from the snacks and drinks. This is expected to be 10% of total sales.
The new accounting system will also involve keeping records of the sales and revenue collected. The records will have information on the number of clients that visit the pool and the type of client that is either a single visit or a season ticket client. In order to account for the ticket sales, the receipts will be produced in duplicate for accountability. The second receipt will be retainedfor future reference and as proof of sales made. The vending machine records will be the stock count taken regularly and the recorded sales. The two records will be added together at the end of the day to get the total daily sales that will be recorded as daily total sales. This daily physical record will be kept as evidence of sales made,and revenue collected and will be used to calculate the amount that should be paid to the West river at the end of each month. This will be 70% of the total sales made during the month. The other 30% will be retained by Winford services Plc.
The new sales and accounting system will be vulnerable to risks just like any new system.The principal risks associated with the system will include anerror, fraud and theft. To counter these threats,strong internal control system is necessary.The first threat to any system is the threat of error. There are various types of accounting errors that can be made in relation to any accounting system. The first error is the error of omission. This is where a transaction or sale is totally left out. In the new system,this can occur when a client who uses the pool is not recorded in the system thus the revenue collected is unaccounted for. This risk can be avoided by ensuring that there is a sufficient inspection of allclients using the pool to ensure that everyone pays for the services.
Error of principle is another error that the accounting system will be exposed to. This is where the entry is made to the wrong account. For example,a client aged 20 years could be recorded as 17 years and be given a discount. This can be mitigated by theinternal control system where clients are asked to provide identification to prove their age and avoid unnecessary discounts.
Error of wrong entry is also another error the system can be exposed to. This is where a wrong payment is recorded, for example; more money than what the client has paid for is recorded. This will in the end lead to the difference in the revenue collected and the available records. This can be avoided by providing data limits to the system such that a wrong entry is recognized before it is recorded.
The accounting system will also be exposed to atransposition error. This is where entries are made to the right account,but the figures are interchanged. This is mainly human errors and can be controlled by putting internal system checks where accounts are compared from time to time to make it easier to identify and correct such errors. Preparation of financial statements will assist in recognizing such errors.The risk of error is one that is hard to control since most are unintentional. A strong internal control system with appropriate checks in the system is the only way that this risk can be kept at a minimum.
The risk of fraud is one that any financial system can be exposed to. Fraud is adeception by an individual orgroup of individuals that are mainly intended for personal gain.This can be achieved by concealing information or intentional change of records in order to take the difference for personal use. In the case of the new sales system,this can be done by entering wrong client information or not recording receipt of money from a client in order to pocket the amount. False discounts can also be recorded such that the client pays the full amount,but it is recorded as a client that was discounted. The excess amount is pocketed by the individual recording. To avoid losing revenue through fraud,several internal controls can be implemented. First, there should be more than one person handling the accounts so that it is hard to coordinate any fraud activities. All the people handling the accounts should be liable for any difference in the accounts. There should also be one appointed authority whose duty will be to supervise entry of records and ensure that all clients are correctly recorded and only allowed to use the pool once correct payment is made.
Daily records should also be prepared to keep track of revenue received,and sales made. This will ensure all revenue received is properly recorded and accounted for. This way it will be hard for any member of staff to take money from the accounts. Records of employees managing or operating the system and a log of the employees should also be maintained where each sign in. This way, it will be easy to track any fraud attempts to a particular individual.These internal control systems will control fraud risk.
Theft is a risk that the new system can be exposed to. This is the risk of physical theft of the parts of the system or theft of money from the accounts. To prevent physical theft of the system or the inventory in the vending machines appropriate security measures should be implemented. This is by employing security personnel and reinforcing all entry points where the money is held,and the system is located. Clear inventory records of the vending machines inventory should be maintained and accounted for on a daily basis. The vending machines should also be secured to avoid theft of the snacks and drinks. These internal controls will safeguard the system against the risk of theft.
External auditing of the new sales and accounting system will be necessary to detect risks that the system is exposed to and the effectiveness of the internal control system. An external audit is an audit by independent auditors who are not involved with running the organization, in this case, not part of Winford services Plc. This is important, because independence of any audit process, is crucial in detecting risks, in the system.
The external auditors will be required to audit the internal control system and try to get weak areas that may expose the system to risks. The auditors will be required to carry out a risk assessment audit where they will try and identify what could go wrong and if the internal control systems are able to detect such an error and correct it. The external auditors will also audit the control activities; the activities carried out by the personnel to ensure that the internal control system is effective.These are activities such as monitoring of entry of information into the pool sales system or monitoring use of the vending machines. The goal of the external audit will be to establish the effectiveness of the internal control system.
The external auditors will also be required to carry out substantive tests of the sales system.This will be carried out to verify the completeness and validity of the sales records. These tests will aid the auditor in forming an opinion on whether the internal control systems are effective. This will be done by examining the receipt copies and comparing them to the sales records to verify they exist; that is validity tests. The sales substantive tests will be carried out on the vending machine to verify the sales recorded by comparing the inventory to the recorded vending machine sales and revenue. The substantive sales audit will be important to determine the effectiveness of the internal control system and from this determine the steps that can be taken to improve the sales system.
All the above will be necessary in order to ensure that the new system will operate effectively. If taken into consideration,the pool ticket system and the vending machine will operate smoothly.
References
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