Internal controls
Sales department: sales clerk are in charge or receiving orders, calculating commissions and discounts, and recording the sale in the journal. Since the sales clerks are paid on commission, there is a risk that sales clerk may inflate their commissions or record fictitious sales.
Accounting department: The accounts clerks are in charge of receiving customer checks, updating sales ledger, and recording the cash in the cash receipts journal. There is a risk that the accounts clerk may fail to record all the cash received and balance it out by failing to make the necessary entries in the sales journal this would encourage teeming and lading.
Warehousing department: The shipping clerk is in charge of dispatching the goods to the customer and updating the inventory ledger and files the sales order in the department. There is a risk that the clerk may dispatch more goods than ordered and balance it out by making corresponding entries in the inventory ledger and the sales records in the department.
Mailroom department: One supervisor oversees 32 employees and there is a risk that the inadequate supervision may provide an opportunity for employees not to record all the checks that are received on mail.
The risks identified can be mitigated by having a separation of duties and having adequate supervision. The sales clerk should receive and process the order, but the calculation of the commission they earn on the transaction should be done by the accounts department. The accounts clerks that receipt the checks from customers should be different from those who record the receipts. In the warehousing department, the clerks in charge of dispatch should be different from the clerks who update the inventory ledger. There should be more supervisors in the mailroom to ensure that there is adequate supervision that will deter employees from engaging in any malpractice.
