Background

You are recently employed as an internal auditor at Giant Eggplant, a fruit and vegetable market in Rowville, Victoria. Giant Eggplant offers a range of agricultural, dairy and bakery products from local farms and bakeries. The company currently has 25 employees. These includes sales staff, store supervisors and administrative staff. The general manager of Giant Eggplant has recently noticed a decline in sales and profit while the purchases of products for resales continued to rise and you are commissioned to evaluate the company’s processes and procedures for revenue and expenditure cycles.

Revenue Cycle

Customers push their shopping carts to the checkout counter where a sales staff processes the sales. The company has five registers but they are not dedicated to specific sales staff because they play many roles in the day-to-day operations. In addition to checking out customers, sales staffs will stock shelves and perform other tasks as demand in various areas throughout the day. This fluid work demand makes the assignment of sales staffs to specific registers impractical.

At the beginning of the shift, a store supervisor collects five cash register drawers from the finance clerk in an office at the back of the market. The drawers contain $100 cash in coins and small bills (known as float) to enable the sales staffs to make change. The supervisor signs a log indicating that he/she has taken custody of the float and places the drawers into the respective cash registers.

Sales to customers are for cash and credit card. Credit card sales are performed in the usual way. The customers tap the credit card on the EFTPOS terminal located in front of the register and enter password if required. Receipts of the purchase and of the credited card transaction are provided to the customer after the completion of the transaction.

The majority of the sales are for cash. The sales staff receives the cash from the customer, makes changes and issues a receipt for the purchases.

At the end of the shift, the supervisor returns the cash registers drawers containing the cash and credit card receipts to the finance clerk and signs a log that he has handed in the cash drawers. The finance clerk later counts the cash and credit card sales. Using a stand-alone finance department computer, the clerk records the total sales amount in the sales journals and the general ledger Sales and Cash accounts. The finance clerk then prepares a deposit slip and delivers the cash to the local branch of the bank.

Expenditure Cycle

The expenditure cycle begins in the warehouse adjacent to the market where the inventory of nonperishable goods such as canned goods are kept. The company also maintain a one-day inventory of produce and other perishable products in the warehouse so sales staffs can quick restock the shelves when necessary. At close of business each evening, the warehouse clerk reviews the market shelves for items that need to be replenished. The clerk restocks the shelves and adjusts the electronic stock records accordingly from the warehouse computer. At this time, the clerk takes note of what needs to be reordered from the suppliers and prints purchase orders from the computer. Depending upon the nature of the product and urgency of the need, the clerk either mails the purchase order to the supplier or orders by phone. Phone orders are followed up by faxing the purchase order to the supplier. When the goods arrive from the vendor, the warehouse clerk reviews the packing slip, restocks the warehouse shelves, and updates the stock records from the computer. At the end of the day, the clerk prepares a hard-copy purchases summary from the computer and sends it to the finance clerk for posting to general ledger.

The vendor’s invoice is sent to the accounting clerk. The clerk examines it for correctness and files it in a temporary file until it is due to be paid. The clerk reviews the temporary file daily looking for invoices to be paid. Using the accounting department computer, the clerk records all cheques in the electronic cheque register. The clerk then files the invoice and mails the cheque to the supplier. At the end of the day, the accounting clerk prints a hard-copy journal voucher from the computer, which summarise the day’s cash disbursements, and sends it to the finance clerk for posting to the general ledger.

Using the finance department computer, the finance clerk posts the journal voucher and purchases summary information to the appropriate general ledger accounts.

Required

Prepare a report to the general manager to evaluate the processes, risks and internal controls for Giant Eggplant’s revenue and expenditure cycle. In your report, you need to include the following

items:

 Data flow diagram of revenue cycle

 Data flow diagram of expenditure cycle

 Analysis of physical internal control weaknesses in Giant Eggplant’s systems

 Description of IT controls that should be in place in Giant Eggplant’s systems