Today so today we run through the 7th electron on the revenue cycle so we only have one person

OK OK so today we're going to be learning about the revenue cycles and so first of all we're going
to be learning the key objectives and strategy would be implications of the revenue cycle and so
we were going to discuss also about technologies that are used in the revenue cycle and then talk
about the key business decisions within the revenue cycle then we then looking through the
primary activities within this cycle and then talk about the risk as well as a typical risk than typical
controls used in this cycle and will discuss a bit more about the how some of the metrics use on
how to measure the revenue cycle performance OK

P3
alright the next so just a reminder that every business will have at least three cycles that we're
learning in this lecture which is the expenditure cycle revenue cycle as well as the financial
statement cycle OK so so every business will have to buy something sell something and then
report OK even though it's a service is business as a services business they still have to buy
supplies even though they don't have to buy inventory or raw materials OK so every business
in Australia will have three cycles expenditure revenue and the reporting cycle financial
statement cycle so the financial cycle so with revenue recycle that's the most important one in
terms of because every business will have to sell something for them to be able to continue
surviving

p4

yeah so the revenue cycle often also refer to the order to cash receipt because it starts with the
customer order and when the customer will receive payment made by the customer OK alright so
you can start with a interaction with customers when they place an order an order can be
service is not just goods OK so then they will make payment for those goods and services
payment can also be done in the beginning so we're not talking about when payment is done
after they receive the goods and services which is sales on credit so with every business we
need to provide an excellent customer service at all times the reason being if you can't you know
like you know where you are source of income OK if you don't have customer you won't be able
to sell anything and it is very important as well for you to be able to retain customers and so
these happy customers will help you then get more customers it is very costly for a business
to acquire new customers like promotions marketing they could be very very expensive so if
you are able to finally get customers you need to be able to then maintain retain this
customers because you want them to keep buying from you right it

p5
so any company when we sell something in an organization we sell something we basically have
two main things going on dealing with customers and the back office activities OK you will
have to deal with customers when they place the order and also deal with them in terms of
delivering the service is and even after the sales OK so so you would expect us you know a
marketing Department sales Department that deals with the customers so as discussed before
for you to be able to sell you need to be able to acquire customers uniquely able to be able to
attract someone to be interested in you in your products or services so that's why you need to
have
a lot of organizations will have to have a divisions or a section dealing with advertising or
promoting and what they are selling and then after that dealing with customers when they
finally place order OK which is the sales Department then
as a result of the sales then you will have to fulfill that order so order fulfillment so then you
will have a division called a logistic if you're selling goods of course and in which they will do
the picking packing and delivering the goods to the customer again they will also be dealing
with any purchases in terms of inventory that you will need for to turn them into goods that you
sell to your customers and
finally once the goods are sent off then the accounting people will have to then process the
invoice and they will also the one that will process the cash payment from or the payment
from the customers and other things will be of course if you're larger organization you will
have employees or stuff then you will have to have a divisions that will be dealing with your
stuff and voice or the management of the staff
p6

so in the revenue cycle you would be seeing some common documents right so remember do not
confuse the documents in the revenue cycle with the documents in the expenditure cycle one
document that is often confused is customer order or customers purchase order OK when the
customer is placing an order with you just like your Sap exercise the customers is basically
sending their purchase order to you because from their end they are actually doing the
expenditure cycle they're buying something there purchasing something right so that's why
they have to create a purchase order to be sent off to their suppliers or vendors and you as
their suppliers will never set up which is order and so we call them customers order or
customers purchase order OK so then based on this we will then process this into a sales
order OK we will we sometimes a real sense of order acknowledgement after the sales order is
confirmed OK so yes we are able to process their order OK when we do before we confirm sales
order typically we do a number of things which we are going to be discussing further in this
lecture today part of it will be checking the level of inventory whether you have to inventory or
not to to be sold to this customer you know just to fulfill the customers are order and also
checking their credit worthiness
1. so if there are new customer you can have to process them as a new customer first you will
have to make sure that these are genuine customers an credible customer we're talking about
selling on credit right so they're going to make the payment after other goods delivered in
that case you're going to have to make some assessments to ensure that your customers is someone
that will it's a genuine customer that will then make payments we will also look at the background
check or credit check and we can then do or determine their credit limit again meaning how much
they can buy on credit with you OK they probably look at a financial positions their size of
operations as well as credit history right
2. so if they're not a new customer then we will ensure that they don't have an outstanding
invoice and also that they don't exceed the credit limit has been set earlier when we verse
approve the customer OK so so you would see these different types of documents so if a customer
order customer purchase order and if they're new they're going to have to then be registered
in new customer will have to go through approval process and they will have to do that
credit application and once the sales order is once everything is created then sells all that can be
confirmed then you will have the sales order document so basically sales order is internal
document it's not like the purchase order the purchase order is used internally and also sent
out to the external another external organizations such as the vendors or the suppliers with
sales order it is just an internal document

so it is a formal document that is prepared based on that customer order recall your SAP exercise
OK and you in any situation when we don't use an ERP you might have multiple copies of sales
order so in the past when people don't use yet and an integrated system like an ERP maybe
they already using a Department little system but in that case that means sales order can
only be is only recorded and printed my people in the sales Department and cannot be
accessed by people in the warehouse and in accounting Department so in that situation is
when they print out the sales order the create sales order there will have to then print a number of
copies so because the warehouse will need to do picking and packing the sales Department
themselves need to keep a copy and also the Accounting may also need that as well OK so same
with ERP we share data we don't have to pay now to create multiple copies OK so they can be
just can give access to the same data OK
so once the sales orders confirming because goods are being picked so that we will also have
the goods packing slip so indicating what is inside each of the cartoons or the pallets So what
happen is a customer can order a number of things and we might end up with multiple boxes or
multiple pallets we need to ensure every goods packed are clearly labeled again and
then we then send them off to the customer when we send them off you need to ensure we have
the appropriate documents as well do we need bill of lading 提 货 单 if we use a currier
typically we do need to help that we might also have a shipping notice which is a
documentary sufficing the customer what goods quantity that have been shipped OK alright
so we might create a bill nowadays we can create these online creative writing online with our on
our query website or we might have a system integrated with the careers web careers our system
then we can automatically then sent off as shipping notice via email once the bill of landing is
created again and

the next thing will be the sales invoice once the goods are sent off then we can then prepare for
the invoice again depending on the sales terms sometimes we create invoice based on just
once it could have been delivered having she cough sometimes we need to have to wait until
the goods have been received by the customer before we can then send off the sales invoice
OK because what sometimes we you know customers will receive less than ordered or even less
than what is sent off so we need to have to adjust ourselves invoice so sales invoices created is
created and sent off to the customer it will have terms of payments how many days they can
make the payments for that credit sales and sometimes if we might have also some terms
stating that they may get a discount if they pay earlier and
finally the customer will make the payment when it's due and will send us a remittance
advice 汇款通知书 or judgment notifying that they've made the payment so this document is
useful for us so we can then track When the payment is coming or not and if we do receive
the same as what they advise us OK
finally we might also have a customer service log that is you know we list the history of our
interactions with customers since the purchase and if anything needed throughout the process of
after the approaches
p7

alright so that's some of the common documents now what is the strategic implications of the
revenue cycle for the company we already know that revenue cycle is most important cycle for
every organization that is looking at selling things like service services or goods right because
that's how we get money and that's how organizations can continue leaving again so the level of
sales of course will drive all other activity levels within the organizations alright the more cells
you have the more activities opposition will have for example will need more people in the
warehouse you will need more people in the sales department in the warehouse maybe also
in the accounting department as well again but we might need more in the sales Department
always the warehouse we might need to have a bigger warehouse at such and such OK alright so
and so in order because in order to survive and prosper an organization will have to sell so
generate revenue but they need to also be profitable OK they may generate revenue but if
they're not profitable then the organization can also parish right day out again so and also they
also need to maintain a healthy cash flow as well again if they don't have enough cash coming in
they might not be able to pay things that are due and things are related to their operations and then
they might not be able to stock up and you know continue operating and selling and then they will
not get revenue and they can also then of Parrish as well so that's why it is very important that
they actually profiting they earn return an they also have positive cash flow
positive cash flow cash flow is related to how well you can manage the cast going out and in
an that's even more important if you sell on credit because you will have to then collect
payment from the customers after the sale and you want them to pay on time right if they
don't then you're losing out again you've already sent off the good ship already delivered the
surface is then if they're not paying you then it's going to have to bear the cost but not
receiving any income for that OK so that's why it is very important in the beginning if you do sell
on credit to ensure that you pre approve your customer in show their genuine customers and
you work out what is the appropriate credit limit that you'd like to give to this customer to
ensure that any sale on credit will be paid by this customer on time OK
so overall a well controlled revenue cycle can provide a competitive advantage by providing
superior customer services so if your means that if your revenue cycle is well controlled
meetings everything all the processes are working as intended so you can respond to the customers
order in timely manner you can process the customer order in timely manner because for example
you using an ERP you have an integrated system processes in your company is working efficiently
so then the customers is happier and then you're seen as providing a great customer service Oh yes
you know I received the order if you often read reviews given by customers in a Google review
for example you see a lot of them would say oh they you know it's very quick they receive my
order in three business days or five business days it's great right so the ability to respond to the
customers needs great it's a very important as well as other needs if they do they have quarries
again in case though providing superior customer service can be very costly because you're
making sure you have the ability to respond to the customer order and needs and that's why
it is important to have a well controlled release cycle so you're operating efficiently and
effectively OK so you need to drive down cost right but at the same time you need to provide
superior customer services to make them happy and so with the hope that you can retain this
customer and expand your customer base

p8

OK so we've talked about ERP right yeah so remember I one of the things that we need to to to
have in a company as an organization is an efficient and effective well controlled recycle Ann
an ERP is one example of the use of technology that can help you achieve that OK because it
improves that integrations companywide you know people are scaring the same data across
the department's so you don't have to go back and forth between departments just to to to
process an order for example the examples that often given you is if they don't have they don't
use them ERP they use a Department toll system the warehouse might not know the level of
the current approved sales and also all the current open cells owner to be completed an the sales
Department cannot cannot work out the current level of inventory so when they want to approve
confirm ourselves or do they need to ensure the level of inventory inventory availability and they
need to go and ask the warehouse the otherwise it maybe it won't be up to date maybe the data is
not updated on it's only updated on a daily basis so then they won't know what's happened today
once you know warehouse maybe deliver some more goods right so so
the same time warehouse will have to wait for the sales Department to keep them the sales order
for them to be able to do the picking and packing but if you use them ERP once there is a
confirm sales order the warehouse will be able to see that they will be able to see list of open
sales order that they need to complete right to do the picking and packing and deliver the
goods to the customer OK alright
so we want to have an efficient and effective operation and other things that we can use also is
the use of electronic data interchange it is often used to enable exchange of data between two
different systems so sometimes the warehouse you know in some organization they not using
the same system in their head office and also in the warehouse so I've seen this so the
warehouse was using the warehouse is using a different system but they want to be able that the
system in the warehouse be able to communicate with the system in the head office or in with
you know the one that is dealing or processing the sales order OK so they want to because
you want to create this kind of integration right you want to be able to have to be able to
access the order in more timely manner right

So what happen is they may have an EDI to help exchange data from one system to another it
could come with some problem because when you are transferring one data from one to
another if you don't set it up correctly if it's not maintained correctly you might not be able
to correctly transfer the data so you might be missing some data you might have truncated
data so the data are not complete and it can affect your operations so if the data are missing or
truncated you gonna have to go back and forth between the two sections of the organization that
are using different systems OK I've seen that for example at that time the warehouse was using a
different system than the head office that are processing the sales order often case the way they set
up the mapping couldn't cater for the reason being because the system that they have in the
warehouse have some limitations in terms of the data for certain eventual for order something like
that so they the edi was mapped according to the ability of the warehouse system so as a result
some orders that have characters more than the limit of the warehouse system when they were
transferred they were truncated so the people in the warehouse don't know some of the
informations related to certain order so in that case they will have to contact an identify one by
one or sometimes they have to send a fax of the order just to make sure they can see the complete
details in the order that's got truncated OK so this is an example of the downside of using a
middleware software and exchange software OK you'd like to have a something that is more
seamless you like to be able to use software from one set of your set of software like an ERP but it
doesn't doesn't I mean sometimes an organization will need a different system maybe the ERP
they're using doesn't have the kind of warehouse system that suits their operations so they need to
use a different warehouse system that suits their operation as a result that's what they need to do
they have to have something to transfer in between

P9
OK so then we also have me also XML extensible markup language if you want to transfer data
from your online sites and you would probably also have you heard about the XML and
extension of XML XML which is XBRL so with XBRL it also allows the exchange of data
between different systems and in that manner they use a barcoding instead of transforming
data from one system to another because if you're transforming such as using an EDI there
could be problems in transforming the data from one system to another but with XBRL out
that's a different ways of doing it so the more like a it has an embedded data like a bar code so it's
almost like so data being exchange more seamlessly as if they are actually from one system
remember the use of barcode in Coles ALDI them using different system but they are able to
scan the bar codes on the goods OK so it's a universal language OK
so next bit will be CRM so in the revenue cycle one of the things you'd like to have also an
extension software that can help you deal with your customer especially sometimes it can be very
complex so you need to have an add on module sometimes it is the core module of the ERP just
often doesn't have the more complex system of customer management so you need to have an
extension to that which is the CRM module OK so with a CR M you can then be able to record
a lot of data relating to this customer and they can help you to improve your ability to
understand your customers needs and or your ability to interact with your customers OK
and and often cases also be able to help you to reduce potential problems between you and
your customer when you're interacting for example allowing the customers to record to have
their credit card recorded or the PayPal connected just one example again but it can also I
mean a lot of a lot of system now are able to do that without the add ONS erm but this is just an
example

P10
OK any questions so far alright OK so alright so let's now discuss about the data being accessed
in revenue cycle so when we you know this is some of the important data again when we process
the sale remember I often mention about the importance of certain controls in the revenue
cycles we like to ensure that the customer really exists we do have the inventory to fulfill that
order and we insure the customer credit or worthiness so we do a credit check these are the
most important things that you need to do for you to be able to confirm a sales order and other
things that you another control that is important is that review of the sales order so you might 7
cases you might want someone to validate that sales order that confirm sales order or to
approve it so then to ensure there is no errors whether it's intentional intentional OK we know
that if you have lots of sales order within a day is not practical for a manager self manager to
review every sales order created by the sell stuff sometimes only high value higher value sales that
are being reviewed again or fails with certain situation that conditions that will that is not common
that will prompt review prompted the need for independent review by the sales manager again so
we need to have access to the customer data we need to have access to the inventory data and
we need to have access to the accounts receivable data the sales Department they don't really
maintain possible data in terms of the sales staff they don't maintain you need to have
someone else like a customer specialist or sale specialist marketing specialists and
independent person to maintain customer data again remember the people in transactions
can not access master data
OK in inventory data is maintained by the people in a warehouse accounts receivable data is by
the conning people again but if you do have access to this then then your ability to make decisions
within the revenue cycle is becoming more efficient so use of ERP is great again

P11
so so so these are common data and let's move on to the common business decisions in revenue
cycle OK so we have to different types of decisions basically in an organization or in company
strategic level or operational level
so the operational level is the day to day one and it might not be the same in different branches
if you're a retail company like ALDI and Coles may not be the same in different stores because
they are responding to their operational situations or challenges as well OK

Strategic level is more of at the top level and company wide and typically identify the people
people in the top management so typically as some things related to the policy and procedures
rather than more of operational activities for example price setting OK so for Coles for example
they have a strategy of differentiated pricing so they might not charge customers in different
suburbs the same price for the same item alright because maybe they will charge more in
affluent suburbs and less in the less of women suffered but for all day the strategy their pricing
strategy is national nationwide so national white for all groceries alright so their groceries will be
priced the same nationally however they produce will not be priced the same because it depends
on access to the local farmers or farms right so this is a strategy that pricing strategy so not the
same with calls so for ALDI who adopt a cost leadership it is sorry I've already done it off for a
um for a let me just make sure that this already silent I already put it on this I'm sorry Oh yes so
I'll be on silent OK so for let me just go back so I was at Coles for ALDI with the cost leadership
strategy so it is important to assure the customers that they are getting the same grocery
prices in every in any ALDI store again but it's not the same with Coles maybe they have
they need to manage their pricing because maybe they do cross subsidizing
for example OK Sales return and warranty it's also something that is decided at the company
level at top management level because you like to decide what you're going to do in terms of you
know sell St turns an warranty for example maybe you apply to give a you know no questions
ourselves return for example like in ALDI they don't really ask you questions if you say you told
them that you not happy with the products you can return it and so but in some come some
organization maybe they have certain criteria for example you can't return a goods that you've
purchased because you change your mind you can only return or exchange if there is a
problem with it for example OK this is important because you can there are two things that you'd
like to address your costs the organization as well as the customer satisfaction and remember we
talk about this alright so we want to ensure that we reduce the costs as much as possible but we
also want to make customers happy but often these things can be conflicting OK so yeah so this is
something that is needs to strategic level warranty how long are you going to be dealing with the
warranty for example um an anet you can it can affect how customers respond to that so I've been
in a situation where I know I was going to buy an electronic product that one store was
overing two years warranty for the same product the same brand so I went to the store and
after one year there was an issue and they replace the item so if I had made a decision of
buying it at a different store without the two year warranty I would not get my item replace
OK
so provision of credit as well how much cell phone credit are you going to allow from each
customer I going to manage the credit limit and things like that OK in terms of payment for cell
phone credit right cash collection for example for terms of credit are you going to allow 20
days only or 30 days of 45 are you going to allow 30 days but if it's paid between 10 days they
can get a discount so these are something that needs to be done at strategic level

with operational level you're dealing with the day-to-day operations so you responding to
customer inquiries if they ask questions about products about the order if they are asking
about credit extension for example because the do have difficulties maybe they have enough
evidence to Tutu then request for a credit extension for example they given according to
company policy's every cell phone credit not needs to be paid within 20 days from the
invoice date but they are skiing for maybe another five more days then you can make a
decision based on the customer's history and such and such OK so so that's at the operational
level
inventory availability you know you know you know how much to hold an decisions to make
purchases again that's operational level OK
delivery methods as well how you going to deliver the goods do we need to engage with a
different couriers because they are giving us maybe special discounts or maybe they're faster or do
we need to have a multi multiple different types of devil methods or not OK so sometimes
partnership with different careers maybe at strategic level but making decisions how to deliver
goods could be at operational level OK
how to apply cash receipts from the customer based on their outstanding invoices this is a day-
to-day operation

p12
OK alright so I hope you knew the differences between strategic decisions an operational
decisions and especially in the revenue cycle OK so this is the structure of the revenue cycle and
we've discussed this many times throughout the whole course with discuss it in since week one so
we have the four primary activities which is process itself order pick pack and ship the goods
bill the customer and receive and record the payment
1. remember we're talking about large organizations dealing with pre approved customers
and they sell on credit OK so as a result we will see that process in which we will be dealing
with the customers order again all the customers purchase order again recall your SAP
exercise OK when you receive the customer order you do that you have to then prepare
the sales order one of the things that you do is to check the inventory level right and in my
also be automated automatically do the credit limit check because it's often case like that
with something like SAP ERP again they will give us an alert if the customer is offered a
credit limit or if they do have an outstanding account the account may be frozen and we
will be alerted that we cannot process and you sales order from this customer until they
clear their up spending in depth with us OK so this probably you don't really experience that
when you do SAP exercise because it's it could it could be something that's already been
automated in the system once it is set up so when you create a new customer one of the things
that you will have to I didn't determine is the credit limit OK so once that's done then you can
create the sales order and sometimes sales order needs to be approved reviewed and approved
by the sales manager once it's created by the sales staff OK
so
2. next will be the picking packing and shipping the goods so that's pretty straightforward
and once that done then the counting people so the picking packing and shipping is at the it's
done within the warehouse Ann the picking and packing so I've go t some chats yeah sorry I
didn't see that OK so I'll deal with the questions in the chat after this so picking and packing
shipping the goods are done in the warehouse typically and then once I've done the
documents may be forwarded but Accounting but if you using an ERP accounting people
will be able to see all the data are related to the sales order and shipping the deliveries fight
so they can then continue on to then create the invoice

OK so if you don't have a system like in ERP system that is integrated and you have departmental
system or you're still very much manual you need these documents the sales order documents is
shipping documents before you can create an invoice you will have to check whether what is
ordered it's what is delivered and you will have to then build this on what is delivered
because the customers may order 10 items 10 quantity of item A but then you might only be
able to deliver 9 and you're going to ask me oh but we do check the inventory variability
right before we confirm a sales order yes the on on paper in my said 10 but by the time we
do have 10 goods left right but by the time the way warehouse do the picking they realize
that one of the item is actually damaged you won't be able to send send out to the customer
you don't want to do that so you can only send the nine items that are good so in that situation
then you will have to build your customers based on the 9 items delivered in this instead of based
on the 10 items ordered OK so then you can create the invoice based on what it's been delivered
and in some cases depending on the Sales terms you could have to wait until the goods are
received by the customer speakers the customers may then only recognize 8, 1 could be damaged
you either will have to replace or you will have to adjust your invoice again
so finally then you will receive record payment from your customers once the invoice is due the
customer will make the payment and then you will be able to record that payment and apply
that to the outstanding accounts receivable

alright so someone asked me what is the relationship between expenditure cycle and revenue cycle
I'm not sure whether this question was early on in the when I discuss about it so yes of course in in
in a lot of situations you want people to sell anything if you don't buy the items that you'd like to
sell either you buy the raw materials and produce the finished good then sell the finished good or
you buy the inventory the finished goods and then you sell them right so some coles for example
an ALDI majority of the items they sell something they receive as a finished good they don't really
have to produce anything right calls may be producing something for example they might get
chicken and then Coles they produce roast chicken so but the majority of the goods are
something they bought from manufacturers OK after finish good then they sell to the customers
the end customers again so so yes so that's how revenue cycle is related to the expenditure
cycle again you're going to have to despite the figure that I had in my slides show expenditure
cycle and then the revenue cycle because you often can't sell before buying something first even if
your surface based company sometimes you gotta have to buy supplies to start so stuck up your
office and start selling OK an other things would be if your company is made to order meaning
you will only make based on the customer order so in that case you may be taking customer order
and then do the purchasing later again for that order again so that's how revenue cycling
expenditure cycle is
I mean it can be used in planning or supply yes we be able to use the sales forecast and historical
sales data to work out how much for example we need to produce how much raw materials that we
need to buy to produce a certain level of goods alright if you're a manufacturer so if your
manufacturer for example often give an example of a category for example Henry knows that you
know they're very much affected by seasons for example the Christmas and then the Easter
right so they know that they're going to be producing more than another time for example
during this seasonal during these different seasons and so they know how much raw
materials they need to buy and because they know how much they need to produce for
different types of chocolates there will be producing different types of chocolates in
Christmas and Easter for example OK maybe they also know what to produce in winter
compared to summer as well OK yes so that's how revenue cycle may be related to also to the
expenditure cycle OK so they they actually give data exchange data to then you know kick off the
other cycle OK depending on how the organization is operating do they make to order which is
they will have to start taking the orders first before doing the purchasing or do they start with
something first day purchases something purchasing something and then it stops selling OK
alright OK next

P13
alright so this is the context diagram of the revenue cycle so basically you can see here how the
review cycle is interacting with other cycles as well and other external entities for example 1 .it
will be interacting with the HR cycle because you're going to have to for example half a staff
dealing with the sales for example you might my info like calculating sales Commission
2.you might have to interact with the production cycle as I said either the revenue cycle will
kick off productions right for example it can be also because the level of inventory drops
then that's why they need to produce more or because they make the order
3.you will be interacting with the career in terms of shipping the goods and also with the
bank in terms of receiving money or depositing money and
4.there will also be dealing with the financial cycle because at the end they will have to report at
the end of the period they will have to report their financial statements

P14
alright so this is a detail level of Davis all you can see based on the logical DFD the data being
exchanged or the data being retrieved or created in different subprocesses of the revenue cycle OK
so remember we have the four primary activities and then we have the processes under each
of the primary activities in which you would see that you would see a more detailed activity
so this is a formal activities which is the process of self order pack and ship the goods build a
customer receipt and record payment

p15
OK so if you recall your SAP exercise you would notice that in the process sales order one of the
things that you do is to create customer quotation create sales order and check stock status
and display the sales order so yes in here we assume that the customers have been created so we
not discussing about creating a new customer OK so with the process sales order we assume that
the customers have already been created OK so they've been approved so we just need to retrieve
them from the customer master data with you exercise you have to create the new customer first
OK so you would see that the
Step 5 to 8 is basically in the first primary activity with revenue cycle
the next bit will be the picking packing and shipping because so step 9 through step 13 OK so
you will then start the delivery processes by again checking stock status and then do the picking
and packing once you pack you need to pack and illustrated with you then post the good issue
right the goods have been issued or delivered to the customer OK alright so you'll notice that this
stock level drops once you post the goods issue right and so that's the second problem actually is
the next formal activity is
the billing the customer so once it could have been a shipped then you can create the invoice
and you notice you can create the invoice because you've shipped the goods if you have not
shipped the goods you could not create that invoice and and so you would be able to review
that as well and let's assume that that sent off to the customer and
finally you will receive the customer statement step 16 to 17 in which you will post receipt of
customer payment and then you will then finally be able to close your cycle in this which is
the process of sales process for that particular sale again remember in the revenue cycle it starts
from the sales order and when they are you receiving payment for your from your customer so that
cell starts from receiving customer order and receive when you receive it usually payment so
that's it you've completed the whole cycle alright

p16
p18

so let's discuss some more and of these processes OK alright so it's the first one to key activities
that you do as discussed many many times throughout the semester
1. we check whether we do half the inventory to fulfill that order why do we do that because
we don't want to be to approve a sales order an order and then in the end we know that we
can fulfill so the customers may not be happy if you have already confirmed that one second we
cannot process that and again we say oh we don't have that they may not be happy so you should
be either letting them know what's happening we do have maybe two items but one item will be
on back order are you happy with that or should we just proceed with two I mean if you maybe
you've done this when you buy things online you might be able to buy these items make payment
and then you get a sale confirmation via your email from this online shop says that I'm sorry
we're actually out of stock for one of the item so we're going to refund the money or we're
going to be delivering them at a later date OK OK so if it's clear from the beginning people I I
don't know with you I'm not happy if I am able to buy something and then later they say all it's out
of stock I'm not that happy usually so that's why it's very important that when customers place an
order and confirm specially if they make payment in advance that you do have the inventory in
stock OK
2. credit check if you buy on credit if your customers combined read it then you need to do
that that's one of the key control you really do not want to be serving another sales on credit
to a customer that one or one word or cannot pay OK once that's done you can confirm the
sales order and then as I said you would already know from the beginning if you might not be able
to fulfill some of this which is a back order OK

P19
so let's discuss more from the perspective of the controls as well OK so and I think this many
times and you might be able to see it as well in terms of I think some ice case in which we can see
decision points at a form of control do we have enough inventory? doing credit check OK? so
these are form of controls OK an when we can create a sales order maybe validation of the sales
order is also important OK like oh approval OK

so here we can see that you need to know who actually supposed to do each of these activities as
well within the revenue cycle if you notice in your SAP exercise and I've said this many times
from the beginning as well when you do the exercise you need to pay attention to the person
that is supposed to be doing that task OK yes I said the exercise is all done by you but you need
to assume the position of the person that is written under each of the task so every step will
have the name of person and also their decision that is actually doing this step from step one
to step 17 they would have the names and position of the people within the global bike
incorporations OK so that's to give you an idea also the importance of segregation of duties at
the operational level or business process level that it is important that you should get Judith
because otherwise then they could be a fraudulent activity and that it could be costly to the
organization and could also impact the customers as well OK so that's why table also indicates
who usually conduct these activities so to give you an awareness of who supposed over the
creation of duties for example checking the inventory level as part of creating a sales order
quickly done by the sales staff
credit check can also be done by the sale staff but may require sales manager as well to
review and approve again there could be certain conditions that might be required against an
an you know this as well sales order typically is created by the sale stuff and but certain apps for
certain type type of sales it might be need to be fairly dated or approved or reviewed and approved
by a sales manager for example for higher value sales in the company we ourselves is a lot every
day you may not want the manager too you could have one manager you really don't want them
to to review every single one so you will only require the manager to just review the high
value transactions for example and you might also have a computer controlling place in which
the computer we create what we call an exception report or an automatic routing in which
the sales order cannot be processed further warehouse to the big enough for picking packing
because an individual is the manager has not approved that so they will route that to the
automatically to the manager alert manager that manager needs to review and approve OK
so for every of these main activities within the processing the sales order the typical activities
within the first primary activities which is the process the sales order we he comes with typical
risks as well OK so remember that every activities that we do in organization it will come with
risk risk and be high risk and be medium can be low and depending on the activities risk and be
more frequent compared to the other OK this one is a daily basis because you get sales every day
for example OK so the first one check the inventory level why we do that because we want to
mitigate potential risk of not selling something that we don't have OK so that's a risk for us
OK because customers may not be happy OK so to prevent selling something that we don't
have we do inventory checking alright
1. so common controls too sure that that that is carrying out that you know that the controls is I
mean that the risk is dealt with or so we need to have some common controls control
activities are there to manage risk OK so we either require inventory checks to be done
every time like it's a couples three passengers it can be also be enforced with computer
control for example for example you want to create a sales order and entering the quantity
and it will let you know probably if you don't have sufficient inventory in stock because it's
integrated is more automated we don't really have to check it will probably let us look we
can't sell 20 items to this customer because we only have 15 in stock right it will probably let
us know so and also other controller can be put in place is eve the company the company also
do periodic inventory check inventory count for example because as I said before we
might have 10 recorded right but once we do the physical check through the warehouse
actually one of the item is damaged so if we do this periodically either weekly basis or
monthly basis then then we can deal with this kind of issue and have a more accurate of
record so we write off the damage one so we adjust the record to 9 OK so then next time
when there is a cell they know that we only have 9 instead of 10 because we know we've done
the check OK so this is an example OK OK
2. so credit check again that's the reason why we like this to be done because we don't want to
sell to customers that want or can't pay OK so the reason we're addressing here is selling
goods to a customer that one can’t pay OK so one of the things that we didn't workout is we
know the total sales that we're going to have with this customer because the customer said we
can order this item and this quantity and we can work out the total sales and that total sales
need to be checked against the credit limit how much do I have left to buy on credit or
also maybe other things with the account is frozen or not because they have an
outstanding debt OK so one of the things that we control to put in place to prevent or to
mitigate the risk of selling goods to customers want to pay is automatic you can have
 that credit check and it can be automated in a computer but but what is most important
is also the segregation of duties if the sale staff or manager have access to play around
with customers credit limit then it would be useless remember it needs to be maintained
by an independent person from the transaction so the customer master data where it has
the credit limit it is to be maintained by someone that did not sale staff and not sales
manager OK so these people cannot play around OK so it will be useless if it's maintained by
the sales officers are because it says office again even though we have an automated system it
will not let us proceed if it's offered the credit limit but then the sales officer will go to the
customer muscle change the limit and then it will then go right so segregation of duties is
important OK
exception reporting rejecting preventing us from proceeding if this offered limit that's another
control so
3. with the last one creating the sales order we do not want to have a lot of us in these
situations or we do not want to record a sale that is not it's not there that means we
overstating our revenue right so we want to ensure that we don't record sales incorrect
right need to have controls to prevent that from happening OK so for example segregation of
duties and so also even even up to making sure that the customers order is a genuine
customers order from that company in the customers company sometimes it might not
be genuine and we do not want to to process ourselves we thought for certain customer
but it's actually not for that customer sent off somewhere else OK an he could happen if
someone change someone who you know play around with the data it could happen for
example they can change that delivery up goods and it might be delivered to someone who
then who sent off a fake purchase order and then you charge that sales to your customer
new customer segments in order this we process this and deliver to a different location
for example and that could happen as well OK
so you need to ensure when you receive your customers order as well that is something
that is a genuine alright and then segregation of duties would be that in related to you
need to ensure the sale staff can only create sales order and managers can review only
approve if they need to and they don't have access to create new customer or maintain
customers data if they can have that they can create a fake customer and then can create
also factitious cells OK and there are a lot of uh related to that for example you join process
a valid customer order when there is a there is a customer order coming in but you don't
process that in timely manner so maybe you need to have proper register when customer
when you receive a customer order and you need to ensure based on that registers that
you've done or completed all the customers orders that received for example sometimes if
a company receives some order in terms of hard copy they might create what we call register
and we register when they receive it and so then when they process it they don't need any any
order in between just another example
another thing would be asking the customers to place order using an online ordering system and
then transferred directly to the ERP system that we're using things like that can also help prevent
the risk of not processing the customers order in timely manner OK and there are a lot of things
that I can't discuss we don't because we have limited time let me check the time again we have
already done one hour let's move on the next one right
p20
so this is an example of checking inventory availability if you've experienced that in yourself
exercise
p21
this is an example of credit check when they apply for credit applications when the new customer
and when we manage the customers this is an example from SAP on all older on the 1st where you
can manage the customers credit limit
p22
OK and this is an example of a sales order you've seen one in from SAP exercises well this is I
think from zero an information as well to the customer once they approve the sales order
P24
OK so my question is what is the sales order? what are you saying what is the answer to this
question So what is the sales order and we've discussed about the difference between purchase
order and sales order what is a sales order oh I see yes it's an internal document it is used by the
warehouse to trigger picking and then also later on by accounting as well it could also be used
to ensure they build the customer correctly OK so again the difference between sale order and
purchase order for this order is also used the external parties so purchase order is both
internal and external document but the sales order is only an internal OK so the sales
confirmation sent off to the customer might look like a sales order but we don't really call itself or
its digital sales confirmation yeah so that's all OK

P27
so let's move on to the next one which is the 2nd primary activity picking packing and shipping
the goods so one of the key activities will be of course picking prepare and leave a OK so again
let's discuss this from the perspective of internal controls as well so just like the previous
apartment activity the table has the clear typical key activity and who usually conduct this
activity and also typical risk encounter and typical common controls and remember these
tables are not exhaustive I think I've already given you a list of different types of controls I think
in week six I'm going to check again so a lot of control we have a lot of controls that we can use
we don't want to use all of them because it could be costly and restrictive want to use the ones that
are right for us so these tables are not exhaustive if you do read the textbook you would notice that
within the text of the body of the body of text reading this chapter they will talk about other
controls that are not listed in the table OK so they will discuss about picking packing and
delivering the goods and also other controls that can be used and they're not listed in stable again
just to show that this table is not exclusively just going to use this table as As for educational
proposals and give you an idea of what are typically seen in these activities OK
so 1. picking the good done by the picking officer and they typically will use picking ticket
that is based on the sales order OK So what we do is we will then print a picking ticket or we
can use a scanner and that scanner is preloaded with what needs to be picked up OK so then
prepare for shipping is typically done by shipping officer we need to segregate the duties
between those who pick, pack because we don't want those who pick and pick If they can
also pack their my say they pick 10 items but actually only pack 9. OK for example so there's
still one OK or they might do incorrect calculations and no one be able to set up an of course
when the goods delivered you either have your own fleet to deliver you own delivery stuff or
you might have to engage a courier which is a third party OK
so with the picking the goods at the risk is picking the wrong goods and type of inventory so as
discussed before OK so that's why we do have what we can call picking tickets or picking
document or we might use a more automated version of a tool which is like a scanner that is
preloaded with the picking list OK then you can just scan scan scan and then they will tell you if
you pick everything correctly every everything completely and correctly OK but if you do have a
user checklist human might still make mistakes OK
And type of inventory you will typically not allow people to go into the inventory area if
you're not a picker of a person there are custodians over the inventory right so restricting
access to the inventory area is also important that's part of a control and when you move on
to the next activity you would notice that is independent checking of the pack codes to the picking
finger right so we basically checking potential incorrect goods or goods being stolen alright
by the picker right so the shipping officer will then you know ensure the goods packed
correctly and food labeling and make sure that what picked is what packed and make sure
that that
sometimes you might have a another independent authorization another maybe a supervisor
or object supervisor delivery or shipping supervisor who will review maybe randomly or
maybe for high value items or higher value delivery alright so make sure there is no type of
good so we don't want the people to steal we also don't want the shipping officers also steal
OK remember we need to have at least three different points of controls in place for to to to
prevent fraud typically right if you only have to different point of controls you know it's easy
for someone to go around the control or for two people to collaborate or collude to steal or to
fraud to fraudulent activities OK so so this indicates a three different points of controls OK
having a picker a separate feature shipping officer and then a supervisor to review that and
again the use of a tools like a barcode scanner it is great computer more automated controls
are typically great in terms of calls so then it's already been recorded like that so he gets lost
you know it's act then we probably need to investigate the shipping office or they might be
stealing something or then we may have to to the career as well again depending on the
terms of sales you know anything missing during delivery may or may not be covered by the
company OK so maybe some companies will responsibility and when they could have been
taken by the career and some responsibility extends during delivery as well OK so if
anything was stolen during delivery OK so next delivery goods we want to ensure that goods
are delivered correct sometimes there is a there is need for a delivery staff and creator to review
the delivery address & off that they agree they are sending 20 boxes and to customer, OK to this
address for example
p28
OK so next is an example of picking slip as well as you can see on the left side is a picking list
with the use of barcodes sometimes it is printed out it's got pictures even better alright so it is
great because sometimes you know the codes may be labeled with a barcode that is not correct
OK that could happen so then when they see how possibly a red sweater it's not red sweater is a in
black pants so it is a correct one or have they been tasked with the incorrect barcode so the people
is on the picking slip is great it is a way to prevent incorrect goods barcode being picked right
so we know what we're supposed to pick right but if you notice here we don't have any prices so
it's very important that the people doesn't know the people who have custody over assets
over inventory will have access to investors should not know how much they cost again
because that will entice them to steal if they know that this is a high value items they probably
work it out if they have any or not but but you should not put price on that so they should not
know how much it costs so you know how much it will be sold to customers so you can see here
there's no price pricing at all not even costs OK in the packing list OK the one on the right is
more of the manual one where the figure will have to fill in manually so instead of using a
barcode OK
P29
OK yeah so this is an example of packing slip OK so we're this packing slip number of such and
such unique number an in that we're packing these items and the quantity of these items another
example of packing slip OK it might be put inside the box OK
P31
so another example of picking example of shipping or delivery node with a career this is a
FedEx again Oh yeah FedEx right so you might be using barcode right as well to then have so
they can easily be wrapped by the career using a scanner again so you might your system
will have to be able to print this if your company using certain career you will have to then
print out this labeling to make it easier for the drivers and the people involved in the delivery
to then process the order

P32
another example of shipping and delivery note and you notice the use of barcode so that we can
see that how it is important to make the process more visions of technology like scanner is
important alright so

p34
finally let's move on to the third activity which is billing the customer so the key activities are
typical key activities will be to ensure that the sales has been completed then you can create
an invoice and then send it off to the customer and remember we were talking about sales on
credit here so we need to ensure that the goods have been delivered first again depending on
the sales terms we might have to wait until it could have been received by the customer but
yes you should not be billed billing the customer and went in a situation where we selling
credit when the goods have not been shipped alright otherwise it will call pre billing OK if
you're selling goods on credit you will selling even services on credit you will deliver search
offices first before billing the customer but if you build customers before they could being
delivered or the services being delivered at revealing that's not sales on credit in the sales on credit
then you will of course deliver what is requested first before building them so you need to ensure
that you have completed that one and so then you can do the billing OK

so once you've checked self has been completed typically check whether those who could have
been delivered to the shipping details it to be reviewed by the accounting people so the
accounting stuff that is doing this pickle account so for suitable council staff and so they will have
to ensure that there is a shipping documents or shipping delivery recorded in the system
before you can then bill and you might have a controls put in place you won't be able to bill
an order in the system when they don't have any record of shipping or delivery yeah OK that's
a formal control an so then the billing officer will then create the invoice OK and then send it
off to the customer we don't want to not build the customers in timely manner because that means
we lose money so but at the same time we do not want to build customers when they have not
been delivered so these are the risk in terms of billing again we every company we have a risk
not being the customer and or billing them incorrectly OK
so it can be offerin under as well so we don't want any of these we don't want to be
overbilling customers will not be happy we don't want to also under bill because we're losing
money so that's the reason why we need to ensure that we are building ensure that there is a
we compare the data in sales order as well as in the delivery or shipping documents if you
don't use an ERP you gotta have to do that comparison properly because the ERP is a form of has
an automated controls will let us know if there's discrepancy for example the customer order
10 items of item 8 and we can only deliver 9 then we know that we can only build a 9 if you
use any app that will of course I will not allow us to build 10 even though we created a a
sales order based on the 10 quantity right away because we already do it nine so then we can only
build them for 9 items that we deliver OK but we really do not want to only bill them for eight
items as well OK so if you see something like any ERP they will likely give an alert if we under
billing or maybe sometimes you can't change you know you when you do the billing you just need
to call the data and you know you're not able to change the data except there is such a situation
where maybe managers will be able to do that OK so billing officer typically will just be able to
call the data and process the invoice not being able to manipulate the quantity for example
not even the price if you know if they're doing that invoicing OK and having a price list for each
inventory and price list is in is maintained by an independent person is also important we don't
want the people in sales for example or people in accounts receivable in accounting to be
able to change the pricing of the items OK we don't want that OK that will create inconsistent
pricing and also it will also empty for the activities alright so you might have a customer that
you know their friends or family members so you then change the price for them for
example so if you don't want that you don't want your stuff to do that so that's why pricing
for each item should be done by the independent person who maintains inventory data
typically under the warehouse or inventory department OK even these people should not
have access to custody over assets physical assets and other transactions remember
independent maintenance of master data is important OK so in that case we are not able to
manipulate invoice

p36
alright so this is an example of invoice I will have a unique number so when the customers make
the payment we know what to apply to OK usually reference number is required in the
p37
example of tax invoice and you notice there's a payment advice at the bottom so if the customer
make the payment they can set off the payment applies to us then we know we know that we've
been paid and we can attract whether payment has come through correctly as well if you make
payment online of course you can then have an automated payment at 5 sent through via email to
your supplier if you have the customer OK so finally let's finally we're on to the last private
activity which is received payment
p38
OK so basically you receive and record the payment and it so you can receive a payment in
form of cash check or bank deposit electronic payment OK and and you need you see here that
receiving the payment typically done by either accounts officer or cashier actually you know
cashier is the one who needs to deal with this one especially in in a situation like in a when you
also have to handle cash for example again so you typically give us a good segregate the
activities between those who receive payment and those who record as you can see here
cashier may receive payment then the accounts receivable officer is the one that will record
from the payment OK from the customers OK so we have phrase associated with these activities
for receiving the payment we might receive late payment or non payment at all and we might
also face with potential type of cash or checks OK So what happened is if you have a in order
to prevent late or non payment you probably be able to you set up like a reminder so your
customer so when it's close to due date or when they later we're not paying on the due date
so then choose to make them aware that they need to make the payment for example OK or
you remind them and be able to then penalize them either removing the credit capacity for
using the account or change their credit limit OK to stop to reduce the risk of non payment
for example
so cash or checks is more when more about your staff mean then you know keep the cash and not
deposited to for example the constable to record it for example it's what happened is sometimes
customer may pay using cash before the due date right and the cashier may be able to use
the cash for their own personal needs and then after that you know then return it when it's
on due date right so then the customer still making the payment however the organization is
actually not losing organization is not losing money but it's affecting their cash flow if they
can get the cash early as you know at the same time when the customers paid that is great from the
cash point of you OK so there's risk OK so they can do that so we need to have controls in place
to prevent casual to use the cash for their own needs in between the time for example you
might have a supervisor we might have a payment advisor applies from the may be used to
reconcile with the cash receipt on that day for example things like that OK so so we need to also
minimize cash handling and if you do have something like a cash register as well you need to
ensure that you know you know what the beginning balance an ending balance for each person so
you should not for example a cash register should not be used by two staff otherwise it's
difficult to determine accountability that's one of the things that we need to do and yeah
nowadays we are mourning for electronic payments yes there is a cost to that but it may be
safer in terms of of cash left OK
I record the payment then we need to record that the customer has made the payment so then we
can then clear the customers outstanding receivable OK so if we don't do that in a timely
manner the customers may be seen as not paying on time maybe we backdated later on but
what happen is if they've already made the payment and they want to place another order
and then because we have not recorded in timely manner then if the customer has an
outstanding debt so when the customer wants to place another order then they were told that
they have an outstanding invoice the customer or outstanding receivables so the customers
will not be happy and that's in that case they will say I've made the payment how come you said
that I have an outstanding account can you please check again for several years we do see that
you've made the payment we just have not recorded it that's not good right so you do want to
record it also in timely manner because it's good for your organization perspective in terms of
managing your cash slow and also an order your books you don't want to you don't want to have
long outstanding for Super Bowl as well it's not good if you want to apply for credit if you bank
sees that your collection is slow then it could affect how much they want to learn you as well so so
yeah and also it can also impact your customer and they will not be happy if that happens OK

p41
so yeah there are a lot of risk associated and controls that can be done in all these primary
activities and again the tables are not exhaustive OK and we will focus of course on the high risks
items high risk activities and that's what really an auditor will do they will target the eye in risk
activities an adult needs to be put in place and again controls that can be used may not be the same
in different organization or given industry alright so then we can also make sure our revenue of
cycle performance as well so let me see the time so I have another half an hour so we want to
ensure remember we want to ensure that our or the new cycle is well controlled OK so we can
have an effective and efficient operation we want to be able to manage the cost of selling but at
the same time we want to make sure the customers are happy so we might set up a number of
key KPI which is key performance indicators and we can set up what are the objectives and what
are the things that we're going to check to ensure that we achieve those objectives
for example if one of the objective is to effectively conduct record and monitor sales of goods
and services effectively actually meaning correctly so we can check you know how many
data entry errors that happen again I complains or satisfaction level she's to indicate a small
sales experience for example credit request can be also asking for a refund due to differences
and also due to billing errors again differences could also be in terms of data entry errors OK Ann
and yeah Ann an whether we also be able to invoice customers in timely manner as well OK in
memory it will affect our cash flow as well so we should be able to fulfill the customers order
in timely manner correctly so accurately and completely in timely manner and also be able
to also do other processes including such as invoicing the customers correctly completely and
in timely manner as well so this information can be used to then gentlemen whether our revenue
cycle is subjective OK again so too many data entry errors then we can look into other controls
that can be put in place for example or maybe we need to have an online ordering system so the
customer is the one who enter the data into the system so we don't have we can reduce the
potential of generating errors done by the staff clerk for example South correct for example OK
another objective will be to arrange the prompt supply of goods and services so meaning we're
able to deliver the goods to the customers as soon as possible so we can look with we can use
some data to workout whether we've been able to achieve that or not by looking at the cycle
time so feel the delivered orders can we deliver owners within the same day or the next day
so sometimes we see that company promoting guaranteed next day delivery meaning if you
place an order now your order will be delivered sent off the following day or same day delivery
meaning you place the order now your order will be processed on the same day on the same day
so that's a cycle time again and presentation will sales on back order as well so if you have a lot
of back order meaning we have not good not good at planning or forecasting and then we are
not able to supply goods and services probably so meaning will always not being able to do
demand and OK so a big order could help indicate that so we need to fix our ability to to do to do
that planning forecasting an
so we ensure we have enough in stock to sell and sales returns would be indications of sale
system can also be informed of canceling the sale because it takes too long for them to to
receive the goods for example OK
so another objective would be to ensure payments for goods and services are correctly receive
recorded in bank so that's more from our end meaning we want to ensure we have enough cash
like we have a positive cash flow right so one of the things with revenue cycle is that We want
to be effective and efficient so we can achieve competitive advantage an but we need to be
profitable and have a positive cash mode so we want to ensure that our account receivables
aging is not that long OK if our policy that they need to pay within 20 days of the invoice
date so it's due within 20 days so we want to have 20 days or less so if you do have more than
20 days or 30 days meaning a lot of our customers pay late and re probably it could also
indicate that we don't have a good control system in place to enforce the customers to pay on
time and that's not good right it's not good for us we can probably expect our cash flow at some
point have a negative cash flow OK and then again even if it cost in terms of ability to stock up
again and self and then we are ability to sell more for example
number of bad debts written off as well meaning a lot of customers maybe not paying their
debts so that's not good at all it could indicate that we don't have a good controls in place to
ensure that customers make the payment maybe we don't have a good pre approval system
to ensure that the customer work out the customers credit worthiness and maybe we don't
have a good control in place for example to freeze customers account without spending
freeze customers without sending account for example OK and
average payment times as well for example we have 20 days from the due date for the customers
to make payment if the average payment times is second less than that 15 days and things like that
then that's that's great for us I for each payment date sorry if it's meaning you a lot of your
customers are paying in advance so yeah

p42
so again depending on your objectives depending on your industry organization how you operate
you may have different objectives put in place and controls that you put in place in summary so
we discuss about the objectives and strategy implication of the recycle to the organization and
technologies that can be used for the revenue cycle and different different two different decision
making which is cycle strategy and operational and also probably activities within physical
associated risks as well as typical controls to mitigate those risks and also typical KPI that we can
use to measure the performance of their recycle right

p43
so finally we can do the install control analysis exercise if we don't finish it now that's OK I'm
going to be uploading the recording as well on this so let's move on to the Drake this one OK
alright so intractable analyzes what we do here is based on the summarize case so we've done this
on my skates right we've done the nice case it's not typical of you know sales hiring company
they hiring out equipment and the processes that we got is kind of a combination of
processes sales order an picking packing and building the customer comes together OK so
we've done the process maps so we can see why we do the process map if you recall during the
tutorial of already highlighted that they did not have the inventory availability check they only
check that they have the equipment that is one of the equipment that they can hire out but they
don't check whether they have them in stock to be hired out OK they do check the credit check
they check the customer not do credit check but they don't do that confederate availability OK
so just from the process you can actually tell as well so we've done the context we've done the
physical and we've done the logical DFD so we can see yeah we can see basically what are the
processes and we've done the program as well which is great for us to do the install control
analysis so when you do the second part of the group assignment your flow chart will be very
helpful to help you to do the instructional analyzes in the past it has a half our students to
annotate the flow chart to indicate which are the missing you know in which in part are the
missing and Crescent rolls we also have to do that in practice when we do analysis we may be
consultant will have to do that and we when we refuse and operations operational fish and see and
effectiveness sometimes one of the things we look into is whether they have a press whether the
critical controls are crossing or missing an we will indicate that in the flow chart to indicate these
are you know where are the critical control surprising missing so that it's immediately clear that
the management that we report OK so we have these full charts and we know that with the first
reading using this watch on whether you can say let me just get this laser pointer as you can see
here they do equipment chat that check whether they have the equipment to be hired out but they
don't do inventory availability check is you notice at the end of the day at the end of the day the
computer updates inventory availability data store funny they do have these but they don't
retrieve data from here when they process the custom order meaning when the electrical
system is doing the picking and packing of the goods you will then maybe the one that will
notice if the goods are there or not if they do have it to be hired out or not then in that case it
inventory control system will have to go back to the hair consultant and let the hikers
although look we can't process this order because we don't have the equipment's in stock
because maybe everything is all out with customers and you know they've not been returned
for example or the earliest return would be in certain gate so we can't process until a later date and
the customers will be happy if they know that As well so yeah

so it's clear from the flow chart and also the process map as well what are the missing controls
right person controls or we can see that when we start with the customer they enter the name and
based on the name they retrieve the addresses and at the same time retrieve data from accounts
receivable data store so using the customer name and address as a unique identifier to identify
the relevant or relevant accounts receivable data again this is not ideal because you should
have a unique customer ID instead of just like that OK just just using the customer name and
address OK so they do have credit check they check whether the customer is in the their market
data due to credit check and then they proceed with the then they can proceed with order
processing OK but they don't do inventory availability check OK and you can also see that the
higher consultant actually do some level of validations sales order validation which is great but
this is not something done independently so it is done by the same person purely for your own
work you maybe not being able to pick up the old mistakes OK so then you would notice that yeah
there's no segregation of duties in warehouse so the eventual consistence basically doing all
of the jobs and it's quite brought a picking packing as well as invoicing maybe the picking and
packing is not that bad because it's a hiring company they will the customers will have to
return the items at some point but they also do the invoicing here as well so you're going to
have to be asking questions OK

so this is the templates that you would see in your second part of your assignment so I'm going to
be asking you to listen activity as well as typical risk and common controls and identify whether
that actually present or not OK so the tables in the chapters so you will be doing extended cycle
which is Chapter 11 so the tables just like what we've discussed now could help you do these
internal control analysis because they're giving you the typical typical activities risk and controls
in given cycles OK

1.
so here in industry level check right inventory availability is not there OK so you can see the
typical risk so typical risk is that higher order is processing equipment that not available
common controls is to do the inventory value test probably check and they don't have that and
they don't have in memory availability and it is great if they have an automatic variable ability
check right so they will not let the order to be processed further if they don't have them installed
meaning when there is a new order then the computer will automatically check to the inventory
valuable data store whether they do have it in stock or not OK excuse me what is a skin is this
company is hiring equipment so in the flow chart earlier is in the beginning of the process it's
already showing equipment check it can be like assume that since this company is hiring things
which is equipment that that already satisfy the inventory availability check now the equipment
check is only checking whether they do hire out this equipment meaning they check to the
customers say that OK I'm having out this item OK which is maybe this is a photograph I think or
maybe a camera understand something like that so they say oh we do have this out OK that's the
only thing they do but they don't check whether they have it in stock meaning they don't check
weather all of the items are actually out with the customer or not I must admit that it's not the
same as a balance the master data so the equipment master data on their hosts like they can only
hold you know maybe even details about the event or the equipment right so they the level of
balance needs to be updated based on the transactions OK and as you can see here if you look at
the case carefully at the end of the day they update what is called inventively availability
meaning they have a record about what they have not in stock or not so whether they're all
out to the customers or they they still have something in the warehouse OK if they don't if
they don't check that then you say yes we can hire this on out but you don't know whether you
have that installed right if everything is automated customer then you can't highly doubt anymore
yeah so that's a difference OK thank you yeah that's why nsap exercise also you have a list of
items and whether they have also the level of stuff to balance you are asked to check the balance
right and so yes that's whether they are available or not to fulfill that order again so they do have
an automatic credit check which is great and some are very credit check at some point even
though not ideal they could have used up renumbering a unique customer ID and because you
know if you don't have a good system to identify your German customers you might not be
able to identify them correctly and then you might be entering incorrect data or you might
be processing data incorrect customer or you or then if you don't do a validated check you
might be processing data for a fictitious customer OK so yeah so there are associated with each
of these controls for example create the sales order another thing would be incorrect equipment
data entered we know we have the equipment check so the equipment check is that if you read
the case again the item number is entered and there the item details are populated into the
sales order the high order right So what happened is this hire consultant doesn't have to re
enter the details of the items it is automatically populated right OK so they automated form
completion the higher order input screen is populated with the equipment master data the
data from the equipment master data OK so they enter the item number and then the details
are populated so so they don't have to be in the details time but they don't do inventory
availability check they just do the equipment

OK alright so are we don't want to have incorrect higher sales or sales data recorded in the system
so we know that the system prompts the hire consultant to review and click confirm OK that's
great so but there is no independent review it's done by the same person so we have we want the
order to be processed immediately remember we want the customers order to be processed
immediately as soon offers immediately as soon as possible so we want the house to know about
and new order as soon as possible so there is a risk that not Oh so there is a risk that we have not
advised of what to be completed in a timely manner and if that we don't manage that risk then the
customers order may not be fulfilled a completed in timely manner as well so in this situation they
do have that they have automatic notification which is via email for them to then pick up the
printed higher order to then do the picking and packing which is great then we move on to the next
of primary activity which is picking packing and shipping the goods using the higher order then
the inventory control assistant is picking the goods right so that's great they have so common
controls is the document like a turn around document as like a picking ticket Anne also or the
higher order is actually acting as a picking ticket as well so with the picking ticket the good thing
is that it doesn't it's a it's Um it's a it's uh just in half like it it kind of like you know it helps us to
pick the goods correctly and rather than just a simple high order that says I've given you an
example of a picking ticket sometimes it will have a picture of the goods it will have the location
where to pick up so it's more efficient or so these goods it looks like this an it is located in this
aisle in the warehouse an in this shelf so they usually have a higher location an shelf location so
then the picker can do it faster OK so if you only use a dinner that looks like a sales order it might
not have the location it might not have the picture it might have other informations that you know
maybe not not supposed to be seen by a picker but again in this situation in this case even the
inventory control system the one who process the invoice so they he he or she knows everything
even the price is even like you know it's not something they sell is something they hire out so
maybe it's not that risky compare if you're selling something selling goods OK I so there's no one
there so the inventory control assistant basically doing everything there's no segregation of duties
and so we don't know whether there is if there's if the inventory control system may still
something or may not do the work correctly no one is reviewing the work of the inventor can solar
system and major control assistance doing the work more like a manual processes rather than
using more automated controls like a barcode scanner for example and yeah so so there is a risk of
incorrect data entry as well OK they don't have someone that reviewing the work of the the vector
control system they they don't have they don't use technology that can reduce the potential of error
as well OK and finally is building the customer we don't want to not build a customer so here
there is no segregation of duties I don't know what's going to happen I don't know maybe the
effective control system may not paint the invoice at some point maybe they will just deliver the
goods and not paying the invoice OK it could happen because the Internet control systems doing
everything no one is really the work and there's no segregation of duties and they might they
might you know it might be one of the customers maybe you know a close friend or family
member they said oh you know you can have the goods now I'll create a billing letter and you can
make payment because maybe you know you have to make a payment within certain you know
maybe 10 days after the billing the invoice date so they don't create the invoice as soon as possible
to postpone the due date for example remember one of the key performance indicators listed with
to ensure that invoice is created on the same day when the goods are delivered as much as possible
so if we want to have a shorter lead time in between delivering the goods and billing the customers
for example again if you terms of sale is based on once the goods have been delivered then you
have to kill them so we want to build them as soon as possible right because we want to collect
money from them OK so so we don't want to build them before they get the goods so if they have
they some of the goods are they ordered to be hired outside not there then we should not be
building them for that if we're going to be delivering the goods at a later date then we need to be
careful as well with that for example if then they they want to hire out two items items an active
items P but items B is actually not installed it's all out with the customers and they know another
customer will return it within two days so they will then deliver item 8 today and after two days
they will then deliver item B for example waiting for the customer to return it if they do return it
OK on time for example so if they create the invoice at the same time when they deliver the goods
to be hired out so they need to ensure that if they only sending out item 8 there should not be
billed feeling the customers of all I can be as well if they're gonna be sending it at a later date OK
again so right so yeah so so we need to ensure get reconcillation independent review segregation
of duties here we also have run to run totals so end of day invoice data updates to sales accounts
receivable and inventory availability data files so this is an example of a computer controls in
which the insurer that if the we issue these goods to be delivered the invoice needs to match up as
well so again this is to prevent the inventory control system for not creating the invoice when the
goods are shipped against as i