Section: Revenue Subsystem Subsection No: 050-02

Subsection: Internal Controls Page: 1 of 6

INTERNAL CONTROLS

Control Objectives

 To ensure that sales transactions are properly authorized

 To warrant the existence of sales transactions

 To ensure that sales transactions are properly recorded

 To ensure that there is a segregation of duties regarding incompatible tasks

 To ascertain that goods ordered are delivered to the corresponding customer

 To ascertain that delivered goods are billed

 To limit access to physical inventory

 To properly account for sales discounts offered to customers

 To properly account for sales returns by customers

 To collect and deposit cash collections in a timely and accurate manner

 To provide suitable documentation for each sales transaction

 To make sure that receivables are collected promptly

 To provide reasonable allowances for credit sales

 To reconcile actual cash records with bank statements and cash on hand

 To reconcile output produced by the system with the input originally entered into

the system.

General Controls

Segregation of Duties

 Before goods are shipped, the details of the approved order represented by the

sales invoices are compared to the actual goods prepared for shipment by an

individual independent of the order picking process.

Section: Revenue Subsystem Subsection No: 050-02
Subsection: Internal Controls Page: 2 of 6

 Customer service calls and/or complaints are handled independently from

transaction processing.

 Personnel responsible for sales and cash receipts, sales audit, and adjustments to

the general ledger have responsibility for only one such activity and have no

system access to activities other than their assigned activity.

 Store personnel or management have neither responsibility for maintenance nor

update access to the file that connects merchandise codes, names and prices.

Documentation Controls

 Transfer orders are sequentially numbered. The sequence of orders processed is

accounted for

 Credit notes are sequentially pre-numbered; the sequence of credit notes is

accounted for

 Personnel responsible for each transaction keep a copy of the source documents

used for such

 A file cabinet is maintained for safekeeping of source documents used for each

transaction

 All returned goods are logged when received. The log details such items as

customers, goods, defects, inspections, and assessment by quality control. Return

details per the log are compared to credit notes issued to ensure that credit is

issued in the correct period and in accordance with company policy

 Customers are provided with a form acknowledging receipt of any cash payments

(i.e., a cash sales invoice, official receipt) and are balanced to cash deposited to

the bank. These documents are pre-numbered and the sequence is accounted for
Section: Revenue Subsystem Subsection No: 050-02
Subsection: Internal Controls Page: 3 of 6

 Shipments of goods to customers are logged. The log is used to ensure that all

shipments are recorded

 Sales audit function logs first and last transaction number on a daily basis to

verify that no transactions are repeated or missed.

 All credit card transactions are signed by the customer

Asset Accountability Controls

 Recorded sales, gross margins, and miscellaneous receipts are compared to budget

regularly; management reviews and approves significant variances.

 Sales audit function compares total sales updated to flash sales report printed at

the store.

 Cash receipts at, before, or after the end of an accounting period are scrutinized

and/or reconciled to ensure complete and consistent recording in the appropriate

accounting period.

 Management reviews relevant sales, cash receipts, costs of sales, and inventory

reports related to sales and cash receipts; significant unusual relationships are

monitored and acted upon

 Bank statements are reconciled to the general ledger regularly.

 Goods sold at, before, or after the end of an accounting period are checked and/or

reconciled to ensure complete and consistent recording in the appropriate

accounting period, including the recording of the related cash receipt.

 Goods returned by customers at, before, or after the end of an accounting period

are scrutinized and/or reconciled to ensure complete and consistent recording in

the appropriate accounting period

Section: Revenue Subsystem Subsection No: 050-02
Subsection: Internal Controls Page: 4 of 6

 Cash over/short amounts are tracked daily by store management and followed-up

by sales audit

 A record of store deposits taken to the bank daily is maintained.

 Cash vaults are locked and secured

 Cash Transaction Files and Master Files are accounted for by individuals in

charge and reconciliation of transactions and deposits/cash received shall be done

after shifts

Authorization Controls

 All changes made to the file that connects merchandise codes, names and prices

are approved by management

 Sales transaction are approved before execution thereof

 Discounts and promos offered to customers are approved by the management

 Management reviews and approves the allowance for doubtful debts

 The information system does not allow processing of sales orders that exceed

customer credit limits

Access Controls

 Personnel with system functions are provided with unique usernames and

passwords

 The information system restricts to authorized personnel the ability to create,

change, or delete sales orders, contracts, and delivery schedules.

 Users are held accountable for activity performed in the system with their user ID
Section: Revenue Subsystem Subsection No: 050-02
Subsection: Internal Controls Page: 5 of 6
Application Controls

Input Controls

 Sales Transactions input data are edited and validated; identified errors are

corrected promptly

 Cash receipts transactions are batched and batch input data is balanced;

out-of-balance batches are corrected promptly

 Validating card charges and establishing that the customer is the valid user of the

card.

 Matching the customer’s signature on the sales invoice with the one on the credit

card.

 Missing data checks to examine the contents of a field for the presence of blank

spaces.

 Numeric-alphabetic data checks to determine whether the correct form of data is

in a field.

Processing Controls

 The information system reports of invoices issued but not posted in finance are

prepared and investigated promptly.

 The information system matches sales order return and credit request transactions

to invoices.

 The information system alerts users of gaps in document numbering

 Establishment of transaction codes for effective and efficient processing of

transactions

 Use of sequential master files to correct and complete processing.

 Built in balancing protocols in the updating process ensure the data is transmitted

completely
Section: Revenue Subsystem Subsection No: 050-02
Subsection: Internal Controls Page: 6 of 6

 The file that connects merchandise codes, names and prices is periodically

reviewed by management for accuracy and on-going pertinence.

 Regular updates of files in the system for accurate records for processing

Output Controls

 Reconciling the general ledger to detect certain types of transaction processing

errors.

 Production of a (hard copy) transaction listing of all successful transactions.

These listings should go to the appropriate users to facilitate reconciliation with

input.

 All internally generated transactions must be placed in a transaction log, and a

listing of these transactions should be sent to the appropriate manager.