a. Draw a BPMN diagram to depict Parktown’s revenue cycle revised to incorporate your solutions to step a.
(CPA Examination, adapted)
Actual solution will depend upon which weaknesses were corrected: this figure addresses all weaknesses listed in part a.
Employee
Activity Performed (sequential, left-to-right across all rows)
Physician
Front Office
Clerk 1
Front Office
Clerk 2
Office Manager
Front Office
Clerk 3
Perform
Services
Prepare
Charge
Slip
Prepare
Receipt
Receive
Payment
Customer
requests
credit?
Open Mail
with another
Office Clerk
Prepare
revenue
summary &
update A/R
No
Deposit
Receipts
Customer
Remittances
Endorse
Checks &
Prepare
Remittance
List
Monthly
Decide
whether to
grant credit
Review Past
Due A/R &
Issue Credit
Memo
Remittance
List
Monthly
Reconcile
Bank
Account
12.9 Figure 12-20 depicts the activities performed in the revenue cycle by the Newton
Hardware Company. (CPA Examination, adapted)
a. Identify at least 3 weaknesses in Newton Hardware’s revenue cycle. Explain the
resulting threat and suggest methods to correct the weakness.
Weakness
Threat/Problem
Recommendation
Accountant prepares and mails
invoice to customer based only on
the sales order.
Errors in shipments could
result in billing errors.
Accountant should prepare invoice
only after receiving copy of
shipping documentation and
comparing that to sales order.
Warehouse clerk picks and packs
order prior to obtaining results of
credit limit check.
Shipments of merchandise
to customers with poor
credit, resulting in loss of
merchandise.
Warehouse clerk should not pick
and pack until after notified of
result of credit check.
Sales clerk issues credit memos.
Sales to customers with
poor credit, in order to
meet sales quota or earn
commissions.
Credit manager should approve
and issue all credit memos. If
merchandise is to be returned,
require receiving department to
document return prior to crediting
the customer’s account.
Accountant receives customer
payments and maintains A/R.
Fraud (lapping).
Cash collections clerk should
retain customer remittances and
deposit them. Only send a
remittance list to the accountant for
use in updating A/R.
Cash collections clerk handles
cash and prepares bank
reconciliation.
Theft and cover up by
manipulating the bank
reconciliation.
Someone not involved in handling
customer payments or making
deposits should do the monthly
bank reconciliation.
b. Identify ways to use IT to streamline Newton’s revenue cycle activities. Describe
the control procedures required in the new system.
Some ways that Newton could use IT to improve efficiency include:
12.10 The Family Support Center is a small charitable organization. It has only four full–
time employees: two staff, an accountant, and an office manager. The majority of its
funding comes from two campaign drives, one in the spring and one in the fall.
Donors make pledges over the telephone. Some donors pay their pledge by credit
card during the telephone campaign, but many prefer to pay in monthly
installments by check. In such cases, the donor pledges are recorded during the
telephone campaign and they are then mailed pledge cards. Donors mail their
contributions directly to the charity. Most donors send a check, but occasionally
some send cash. Most donors return their pledge card with their check or cash
donation, but occasionally the Family Support Center receives anonymous cash
donations. The procedures used to process donations are as follows:
Sarah, one of the staff members who has worked for the Family Support
Center for 12 years, opens all mail. She sorts the donations from the other
mail and prepares a list of all donations, indicating the name of the donor (or
anonymous), amount of the donation, and the pledge number (if the donor
returned the pledge card). Sarah then sends the list, cash, and checks to the
accountant.
The accountant enters the information from the list into the computer to
update the Family Support Center’s files. The accountant then prepares a
deposit slip (in duplicate) and deposits all cash and checks into the charity’s
bank account at the end of each day. No funds are left on the premises
overnight. The validated deposit slip is then filed by date. The accountant
also mails an acknowledgment letter thanking each donor. Monthly, the
accountant retrieves all deposit slips and uses them to reconcile the Family
Support Center’s bank statement. At this time, the accountant also reviews
the pledge files and sends a follow-up letter to those people who have not yet
fulfilled their pledges.
Each employee has a computer workstation that is connected to the internal
network. Employees are permitted to surf the Web during lunch hours. Each
employee has full access to the charity’s accounting system, so that anyone
can fill in for someone else who is sick or on vacation. Each Friday, the
accountant makes a backup copy of all computer files. The backup copy is
stored in the office manager’s office.
a. Identify two major control weaknesses in the Family Support Center’s cash
receipts procedures. For each weakness you identify, suggest a method to correct
that weakness. Your solution must be specific—identify which specific employees
should do what. Assume that no new employees can be hired
1. Weakness – Sarah opens all mail and prepares a list of donations (cash and
b. Describe the IT control procedures that should exist in order to protect the
Family Support Center from loss, alteration, or unauthorized disclosure of data.
12.11 Match the threats in the first column to the appropriate control procedures in the
second column (more than one control may address the same threat).
Threat
Applicable Control Procedures
1. _a,p__ Uncollectible sales
a. Restrict access to master data.
2. _g,i__ Mistakes in shipping
orders to customers.
b. Encrypt customer information while in
storage.
3. __o_ Crediting customer
payments to the wrong
account.
c. Backup and disaster recovery
procedures.
4. _f,m,o__ Theft of customer
payments.
d. Digital signatures.
5. _e,j,k__ Theft of inventory
by employees.
e. Physical access controls on inventory
6. __l_ Excess inventory.
f. Segregation of duties of handling cash
and maintaining accounts receivable.
7. _a__ Reduced prices for
sales to friends.
g. Reconciliation of packing lists with sales
orders.
8. _d__ Orders later
repudiated by customers
who deny placing them.
h. Reconciliation of invoices with packing
lists and sales orders.
9. _h,q__ Failure to bill
customers.
i. Use of barcodes or RFID tags.
10. _h__ Errors in customer
invoices
j. Periodic physical counts of inventory
11. _m,n_ Cash flow problems
k. Perpetual inventory system.
12. _c__ Loss of accounts
receivable data
l. Use of either EOQ, MRP, or JIT
inventory control system.
13. __a,b_ Unauthorized
disclosure of customer
personal information.
m. Lockboxes or electronic lockboxes.
14. _g,r__ Failure to ship orders
to customers.
n. Cash flow budget
o. Mail monthly statements to customers.
p. Credit approval by someone not
involved in sales.
q. Segregation of duties of shipping and
billing.
r. Periodic reconciliation of prenumbered
sales orders with prenumbered shipping
documents.
12.12 EXCEL PROBLEM
Use EXCEL’s regression tools to analyze and forecast future sales.
(Hint: The article “Forecasting with Excel,” by James A. Weisel in the February
2009 issue of the Journal of Accountancy (available at www.aicpa.org) explains how
to perform the following tasks using either Excel 2003 or Excel 2007; if you are
using a newer version of Excel, you will need to use Excel’s built-in help function to
learn about any syntax changes).
a. Create a spreadsheet with the following data about targeted emails, click ads,
and unit sales:
Emails
Clicks
Unit Sales
150,000
100
12,000
155,000
105
12,500
125,000
75
10,000
130,000
150
14,000
135,000
125
12,500
120,000
100
10,000
125,000
125
10,900
130,000
135
11,500
130,000
110
12,500
120,000
95
10,500
100,000
75
10,750
110,000
100
10,000
100,000
80
9,500
140,000
130
13,500
120,000
110
11,500
Emails
Clicks
Unit Sales
100,000
85
12,000
110,000
100
9,000
120,000
135
10,000
130,000
140
13,500
140,000
125
13,400
130,000
115
12,750
120,000
105
12,750
100,000
95
10,000
130,000
145
9,000
150,000
150
15,000
140,000
120
12,000
125,000
100
13,500
110,000
95
11,000
130,000
140
13,500