Assessment of the internal control system

Case Study

Bazar company

The CEO of the company "Bazar ", Mr. Ben Ali, who has just received the report of his auditor
(reservations on accounts receivable, sales and stocks), calls you for a consultation.

The inventory discrepancies are, indeed, very important and unexplained by the company. There are a
large number of credit notes to be issued for deliveries that do not conform to the order and credit notes
to be issued for returns of goods.

Mr. Ben Ali, who was not aware of these problems, would like to restore the situation as soon as
possible.

During your first meeting with Mr. Ben Ali, you were told the following:

 The company "Bazar SA" distributes products to small, medium and large commercial surfaces

(kitchen utensils, toys, cosmetics...).

 The company is held in majority by Mr Ben Ali and his family. It is very dynamic.

Its turnover keeps growing and Mr Ben Ali thinks of diversifying even more its range of products.

Mr Ben Ali gives you the company's organization chart and asks you to analyze the operating circuit

sales, customers, and inventory outflows.

Following your investigations, you note the following points:

1. Commands:

- Receipt of orders: Customer orders are collected by the representatives.

The order forms are pre-numbered and established in 3 copies: 1 for the customer, 2

for the sales department.

- The sales department: enters the purchase orders on computer. The latter issues a

sticker with the name, number and address of the customer. This department

checks that the ordered articles are in stock and decides on the restocking when the minimum stock
level is reached. It then sends 2 copies of the order forms and the sticker label to the warehouse
manager.
2. Release of stocks

- Warehouse: physical exit; Mr Brahim, head storekeeper, receives each morning the order forms and
prepares the stock outlets. The various articles ordered by a customer are then taken out of the stock
ordered by a customer and put in a plastic box intended for this customer, to which the self-adhesive
label with the recipient's references has been attached. The plastic boxes circulate on a conveyor belt
with their order form.

- Each warehouse worker, who is responsible for the delivery of a certain number of articles, reads
the order form, places the ordered items for which he is responsible in the box and checks off
the corresponding items on the order form.

- At the end of the line, the box is closed and a copy of the order form is left on the box. Mr.
Brahim checks that all the items on the order form are checked.

- The second copy of the purchase order is given to the sales department which, by validating the
purchase orders, edits the delivery notes and the invoices, and updates the accounting stock.
When a stock shortage is physically observed in the warehouse and not on the accounting stock,
the sales department updates the accounting stock and orders the corresponding references
from suppliers. This situation happens regularly.

3. Delivery

Purchase orders received in the morning at the store are processed in the morning. The goods are
shipped in the afternoon. Deliveries are made by independent carriers. They deliver the parcels and give
one of the two copies of the delivery note to the customer. The second copy is sometimes returned to
the company "Bazar SA".

4. Return of goods

The returns, which arrive quite often, are received by the sales department which, at the end of each
month:

 Conducts an inventory of the stock received;

 Establishes the return vouchers;
 Issues the credit notes which are sent to the customers;
 Hands over the goods to the warehouse manager;
 Hand over a duplicate to the customer service department which adjusts the Costumer’s account

Due to the large number of complaints, the sales department has a significant delay in issuing credit
notes.
5.The customer service

This department is in charge of keeping the customer accounts up to date and following up on unpaid
invoices.

e. Follow-up of clients; this department has computerized listings of all movements (sales and receipts)
by customer. The follow-up of customers is a heavy work because the company has about 6000
customers.

f. When a customer exceeds the 30-day deadline, the customer service department sends a reminder
letter. This procedure is actually not used very much because there are many customers to analyze and,
given the customers to analyze and, Due to the company's delay in issuing credit notes, dissatisfied
customers deliberately block payments or automatically deduct credit notes.

To do: You are responsible for identifying deficiencies, potential risks, and propose control activities to
be implemented using the following table:
 Deficiencies Potential risks Recommandations

Command
s

Release of
stocks
Delivery

Return of
goods

Costumer
service