SALES ORDER CYCLE

REVIEW AUDIT REPORT

TABLE OF CONTENTS

03 Executive Summary 16 Appendices

03 Executive Summary 16 A: Best Practice Scorecard
04 Objectives, Scope and 23 B: Internal Control
Procedures Performed Assessment
05 Background 30 C: Process Maps
05 Background Statistics 35 D: Testing Matrix
07 Action Matrix 36 E: Acknowledgments
07 Action Matrix Summary
08 Action Matrix Detail

2
EXECUTIVE SUMMARY
Internal audit conducted a review of the sales order process with the objective of evaluating the overall function for adequate controls and
operational effectiveness.
Specific areas of focus included the quote-to-invoice process, contract operations/maintenance, accuracy and integrity of data captured in the
order management system, and the quote-to-invoice cycle time.
This review was completed on (Insert Date).
The current sales order process is inefficient and results in increased quote-to-invoice cycle times. Also, the company’s information
system is currently not collecting valuable sales discount information. This lack of information hampers management’s ability to
make informed decisions related to pricing. Other key observations noted during our review include:

• Discounts are currently not being tracked on an overall basis. This lack of discount information hinders management’s ability to create and
maintain effective pricing strategies. In an analysis performed by internal audit, it was noted that XX% discount ($XXM) was given on
orders of $XXXM during the period (Insert Dates).
• Discount authorization documentation is incomplete or missing. Potential unauthorized discounts may be given to customers, which
results in lost revenue and undermines the company’s overall pricing strategy.
• Contracts and agreements are not consistently submitted to contract operations for review.
• Tool configuration information is not readily available to regional marketing and sales personnel. As such, the overall quotation/order
process cycle time is increased because quotes and purchase orders do not contain complete information.
• Sales quotes do not consistently have complete tool configuration information, resulting in incomplete purchase orders from customers.
Incomplete tool configuration information on purchase orders creates process inefficiencies in the configuration process and ultimately
increases the overall order cycle time.
• A global clean book checklist (CBC) to address the overall sales order process does not exist. As CBC requirements are not consistent
between departments, quotes and purchase orders are sometimes passed on to the next process step without complete information.
• The master price list in the system is not maintained. Pricing information provided to customers may be incorrect and could potentially
result in lost revenue. Maintaining a manual system is costly and time-consuming.
• The shipping log is not consistently filled out to reflect all appropriate shipping information. Failure to record shipping information in the
shipping log could potentially hinder the company’s ability to trace shipments and respond to customer inquiries regarding shipments in a
timely manner.

3
OBJECTIVES, SCOPE AND PROCEDURES
PERFORMED

• Evaluate the internal control environment and the effectiveness and efficiency of the sales order
cycle from quote to invoicing.
• Review and evaluate the adequacy of existing policies and procedures in the sales order process.
Objective
• Benchmark Company X’s sales order process with “Best Internal Control Policies” and “Best
Practices” information.
• Identify opportunities for internal control and process improvements.

• The scope of the work included a review of the sales order cycle at (Company).
Scope
• Our work did not include other Company X locations.

• Reviewed existing policies and procedures for the processing of sales orders from quote to invoicing.
• Interviewed key personnel in regional marketing, order management and systems engineering to
obtain an understanding of the sales order process.
Procedures Performed • Performed transaction testing of sales orders to evaluate cycle time, proper authorizations and
During This Review support for entries.
• Performed computer-assisted audit testing (CAAT) analysis on sales order records.
• Evaluated the efficiency and effectiveness of the sales order process and related internal controls
and compared to best practices, noting opportunities for improvement.

4
BACKGROUND STATISTICS

Key Discount Statistics:

Sales Order Statistics From (Dates):

Total Orders Received $xxx.x M
Less: Total Discounts xx.x M (xx%)
Net Bookings Value xxx.x M
Top Ten Customer Discounts
Booking Discount Discount
Customer Name List Price
Value Given %

The table shows the top ten customers by

discount given. This represents approximately
$xx.x M (xx%) of the total discounts over the
period from (Dates).

Top Ten Parts Discounts

Totals
Booking Discount Discount
Part # Part Description List Price
Value Given %

The table shows the top ten discounted parts over

the same period. Discounts relating to the xxx MM
Indexer accounted for approximately $xx.x M (xx
%) of total discounts ($xx.x M) given.

Note: Data for both tables taken from sales order data
from (Dates).

5
Totals
BACKGROUND STATISTICS

Stratification of Order Values

The total order value of $ is composed of x,xxx orders and is broken out below:

Stratified Value # of Orders % of Orders Total Value % of Value

*The data above was obtained from the system and includes all orders received from (Dates).

Top Ten Customers as Percentage of Total Order Value

The top ten customers below accounted for $ (xx%) of the total booking value and x,xxx (xx%) of
total orders from (Dates). The detailed breakdown is outlined below:

Customer Name Booking Value % of Total

6
ACTION MATRIX SUMMARY

Issues/Observations Page Priority

Discount information is not tracked on a global basis and is therefore not available for
1 8
management’s analysis.

2 Discount authorization documentation is incomplete or missing. 9

3 Contracts and agreements are not consistently submitted to contract operations for review. 10

Tool configuration information is not readily available to regional marketing and sales personnel,
4 11
which increases the overall order process.

Sales quotes do not consistently have complete tool configuration information, resulting in
5 12
incomplete purchase orders from customers.

6 A global clean book checklist (CBC) to address the overall sales order process does not exist. 13
7 The master price list in the system is not maintained. 14

Repeat Item: The shipping log is not consistently filled out to reflect all appropriate shipping
8 15
information.

Priority Rating: High Medium Low

7
ACTION MATRIX DETAIL

Issues/Observations Action Required Owner Date

1. Discount information is not tracked on the system and is therefore not A. The gross value of the
available for management’s analysis. product and the
Internal audit conducted analysis of sales orders received from (Dates). We discounts offered
compared the booking value of orders received to the master price list in the should be entered and
system. It was noted that approximately XX% discount was given ($XX.XM) on tracked in the system.
total orders of $XXXM. This information is not readily available to management B. Perform periodic
(i.e., no reports detailing this information are currently available). margin and profitability
When customer orders are entered into the system, the total price on the orders is analysis of the sales
input into a field called “booking value.” Orders are currently entered at the net order in the system to
sales amount and not at the gross price with the associated discount (if ensure that overall
applicable). Per discussion with the project specialist, the system has this discounts given to
capability (tracking both the gross price and the discount) but it is currently not customers are in
being utilized. As such, the company is not tracking discounts through its order accordance with
management system. management’s
strategies.
As the company currently does not have good visibility of total discounts given to
customers on a global basis, management is not informed about how much
discount is actually given away.
Business Impact:
• Lack of discount information affects management’s ability to create and
maintain effective pricing strategies.
• Margin and profitability information on various product lines is difficult to
ascertain because of the lack of detailed discount information.

8
ACTION MATRIX DETAIL

Issues/Observations Action Required Owner Date

2. Discount authorization documentation is incomplete or missing. A. Train applicable sales
According to the company’s sales authorization matrix (on the company’s intranet), personnel to ensure
all discounts greater than XX% must be signed by either the CEO or the COO. that discount
authorization is
At the request of the operations controller, we reviewed X purchase orders (with obtained prior to
the purpose of verifying proper discount authorization) for the following customers: providing discounts to
(Companies). Our findings are as follows: (Insert Findings) customers.
Business Impact: Additionally, make sure
• Unauthorized discounts are given to customers. that approved
discounts are
supported by the
appropriate
documentation.
B. Evaluate the current
discount authorization
matrix/policy for
relevancy and make
changes as
appropriate.

9
ACTION MATRIX DETAIL

Issues/Observations Action Required Owner Date

3. Contracts and agreements are not consistently submitted to contract A. Establish a systematic
operations for review. process to review non-
According to the director of contracts/intellectual property, the company does not standard contracts.
currently have a formal contract and agreement review process. Additionally, create a
matrix of potential
There are currently no formal guidelines or policies governing sales individuals sales opportunities
when they are negotiating contracts/agreements with customers. As such, sales with corresponding
individuals have at times entered into agreements with customers without first action items to help
consulting the company’s in-house legal counsel. Per discussion with the director sales individuals know
of contracts/intellectual property, any non-standard agreement (i.e., any when they should
modification or deviation from Company X’s standard terms and conditions) should obtain assistance from
be reviewed by contract operations. However, this is a verbal policy only at this the in-house legal
time and no formal documentation exists. counsel.
Establishing a formal documented review process will help mitigate potential legal
risks the company may be exposed to during contract negotiations.
Business Impact:
• Although we did not encounter any significant issues, the company may have
potential exposure by entering into agreements without first obtaining the
necessary legal advice.

10
ACTION MATRIX DETAIL

Issues/Observations Action Required Owner Date

4. Tool configuration information is not readily available to regional marketing A. A periodic report of
and sales personnel, which increases the cycle time in the sales order known tool
process. configuration should be
Sales personnel request pricing and availability information from regional provided to regional
marketing when preparing quotes for customers. This is done for both tool marketing and sales
(configurable) and non-tool (not configurable) products. If the quote involves a tool, personnel by systems
then it will require configuration information. engineering.
Per discussion with the senior regional marketing representative, tool configuration B. Management should
information is not consistently available to regional marketing and sales personnel. consider creating an
Systems engineering maintains a database of known configurations with tool online database of
names; however, regional marketing and sales personnel do not have access to known tool
this information. If quotes do not contain accurate tool configuration information, configurations that
then the whole order process is slowed down because systems engineering can regional marketing and
not configure tools without complete information from the customer. As both sales personnel can
regional marketing and sales personnel are heavily involved in the quoting access. The database
process, they need to have easy access to this information to be able to provide should be updated with
customers with accurate tool information. accurate tool
configuration
Providing regional marketing and sales personnel with a report of known tool information. On-site
configurations will help them to better communicate with customers on the front field engineers and
end and expedite the quoting process. selected customers
Business Impact: should be given
• The overall quotation/order process cycle time is increased because quotes access to this tooling
and purchase orders do not contain complete information. This in turn information.
increases the overall cycle time from quote to shipment.

11
ACTION MATRIX DETAIL

Issues/Observations Action Required Owner Date

5. Sales quotes do not consistently have complete tool configuration A. Establish a systematic
information, resulting in incomplete purchase orders from customers. process to ensure that
Per discussion with the senior regional marketing representative, sales personnel complete configuration
do not consistently provide regional marketing with all the necessary information to information is provided
ensure that quotes (which customers use to issue purchase orders) are accurate by the customer before
and complete. Additionally, sales personnel are required to complete a clean book the purchase order is
checklist (CBC) for quotes before they issue them to customers; however, this is submitted to systems
not consistently done. A standardized quote request form has been developed for engineering.
sales personnel, but is not consistently used. As such, customer purchase orders B. Systems engineering
do not always have complete information. According to the systems engineer, should be involved in
purchase orders need to be more specific to allow the systems engineering team the quote process to
to accurately configure tools. ensure that customers
According to the systems engineering manager, approximately XX% of purchase are provided with
orders received from order management have incomplete or incorrect tool accurate configuration
configuration information. When this happens, systems engineering is required to information upfront.
communicate with regional marketing or directly with the customer to obtain the C. The standardized
necessary information to complete the tool configuration process. quote request form
Internal audit tested XX purchase orders received by systems engineering over a should be used to
one-week period and noted that X purchase orders contained incomplete (X) or ensure that complete
incorrect (X) tool configuration information. These types of issues prevent systems and accurate quote
engineering from completing tool configurations in a timely manner and thereby information is captured
increase the cycle time for processing customer orders. from customers. Sales
personnel should
Business Impact: review completed
• Incomplete tool configuration information on purchase orders creates process quotes for accuracy
inefficiencies in the configuration process and ultimately increases the overall and completeness
order cycle time. before submitting to
• Incorrect configuration information could potentially cause the company to incur regional marketing and
additional costs associated with rework. systems engineering.

12
ACTION MATRIX DETAIL

Issues/Observations Action Required Owner Date

6. A global clean book checklist (CBC) to address the overall sales order A. Regional marketing,
process does not exist. order management,
Regional marketing and order management are required to complete clean book and systems
checklists (CBCs), which are unique to their respective areas. Additionally, engineering should
systems engineering completes an engineering design analysis (EDA) when evaluate consolidating
configuring tools. However, there is no global document that addresses the overall the existing CBCs and
sales order process. As such, customer purchase orders are processed without EDA into one global
regard to the overall sales order process. This has resulted in inefficiencies in the document that contains
sales order process. all necessary
information (e.g., billing
For example, the order management CBC does not contain all the information information, tool
needed by systems engineering. Items such as the customer contact name, tool configuration
name and model name are not addressed by the current order management CBC. information, etc.).
As a result, purchase orders “pass” the order management CBC although they do
not meet systems engineering information requirements. These purchase orders
require additional follow-up work (i.e., locating the customer contact name, tool
name, etc.). We tested XX purchase orders that passed the order management
CBC and were faxed to systems engineering and noted that X of the purchase
orders required follow-up work.
In order to expedite the sales order process, management should consider
aligning the CBCs and the EDA among the various departments involved in the
sales order process. This will help streamline the overall process, as all the
necessary information will be captured from the customer at one point in time.
Business Impact:
• As CBC requirements are not consistent between departments, quotes and
purchase orders are sometimes passed on to the next process step without
complete information. This inefficiency increases the overall cycle time from
quote to shipment.

13
ACTION MATRIX DETAIL

Issues/Observations Action Required Owner Date

7. The master price list in the system is not up to date. A. Update and maintain
Per discussion with the information technology specialist, the master price list is the master price list in
not complete and is not kept up to date. the system.
Internal audit reviewed the list price for XX part numbers in the price book used by B. Establish a formal
regional marketing for quote purposes and traced and agreed the price to the process to ensure that
master price list contained within, noting one discrepancy. Additionally, we pricing information is
performed CAAT on the master price list and found that XXX part numbers were consistently obtained
missing. and updated.
The master price list should be kept current with all existing tools and their
associated prices. Maintaining pricing information on system X will increase the
accuracy and integrity of the pricing information and decrease the cost of
maintaining and updating the manual system.
Business Impact:
• Pricing information provided to customers may be incorrect and could
potentially result in lost revenue.
• Maintaining a manual system is costly and time consuming.

14
ACTION MATRIX DETAIL

Issues/Observations Action Required Owner Date

8. Repeat Item: The shipping log is not consistently filled out to reflect the A. Implement a policy that
carrier and routing number. requires the shipping
The shipping department is required to keep a shipping log to capture daily log to be completely
shipping information and activity. Each log entry is supposed to capture key filled out the same day
information on the shipment, which includes the carrier and the applicable routing product is shipped.
number. B. Create a database to
Per review of the shipping log, it was noted that key shipping information is not maintain the shipping
consistently being recorded. XX% of the log entries did not contain carrier and log. The invoicing
routing number information. Additionally, we were unable to locate the supporting department should
shipping documentation in XX% of the transactions reviewed. have access to the
database so they can
Shipping employees should record all applicable shipping information in the verify whether items
shipping log on the same day that shipment occurs. This practice will ensure that have been shipped
all supporting information is properly recorded and documented. before invoicing
Business Impact: occurs.
• Failure to record shipping information in the shipping log could potentially
hinder the company’s ability to quickly respond to customer questions regarding
shipments and may cause loss of traceability for products in transit.

15
APPENDIX A: SCORECARD
The matrix on the following pages is based on recommended practices.
An evaluation of Company X’s processes is noted in each instance.

Practices Were Evaluated as Follows:

Good/World Class: Best practices are currently used.

 Moderate Use: Best-practice status may be achieved if improvements are made.

6 Limited/Some Use: Improvements are recommended to improve process efficiency/effectiveness.

Where possible improvement can be made in the company’s best-practice structure, a reference has been made to the Action Matrix, where
management’s change implementation is described along with the responsible party and estimated implementation timing.

16
BEST PRACTICES

Key Internal Control Objectives Page Priority

1 Provide one primary contact point for each type of customer. 18
2 Create a simple, easy-to-use order-taking process. 19
3 Create an integrated system that is informative and flexible and used throughout the company. 20
4 Make decisions at the time of customer contact. 21
5 Establish and periodically re-evaluate long-term agreements between customers and the company. 22

17
BEST PRACTICES

Key Internal Control Objective Company X Practice Rating Reference

1. Provide one primary contact point for each type of customer. Company X customers Action Item
• The company has records that indicate customer characteristics such currently interact primarily with # 4,5
as order frequency, volume and complexity. the sales person servicing their
account.
• Customer technological and personnel capabilities are major
considerations in deciding how a company's orders are placed. When the customer needs
• Employee responsibilities related to taking customer orders are well- technical information, someone
defined, and questions about products are referred to a trained from the systems engineering
customer service representative. department will interact with
them to exchange the relevant
• The company has mechanisms in place to measure how well
technical data.
employees taking orders respond to customers.
Systems engineering does not
Benefits:
currently have a formal
• Reduced customer frustration. process for communicating this
• Improved order cycle time. information to the customer.
The company should evaluate
• Reduced company costs and customer complaints. the feasibility of dedicating a
• Improved company responsiveness and ability to track orders. systems engineer (or another
employee with a sufficient
technical background) to work
exclusively with customers to
determine technical
specifications.

18
BEST PRACTICES

Key Internal Control Objective Company X Practice Rating Reference

2. Create a simple, easy-to-use order-taking process. Sales personnel do not Action Item
• Computer systems are always accessible while employees are taking consistently provide regional # 4,5
orders. marketing with all the
necessary information to
• The company considers the complex or specialized needs of certain ensure that quotes (which
customer groups when designing its order-taking process. customers use to issue
• The company always confirms a customer's order before completing the purchase orders) are accurate
order-taking process. and complete.
• The company uses the order date as the primary means of ranking
According to the systems
orders by priority.
engineering manager,
Benefits: approximately XX% of
purchase orders received from
• Reduced order process time. order management have
• Reduced customer inquiries/complaints and internal follow-up on incomplete information. When
orders. purchase orders have
incomplete information,
systems engineering is
required to communicate with
regional marketing or with the
customer to obtain the
necessary information to
complete the tool configuration
process.

19
BEST PRACTICES

Key Internal Control Objective Company X Practice Rating Reference

3. Create an integrated system that is informative and flexible and used The company currently uses Action Item
throughout the company. an enterprise-wide system. #4
• Customers are transferred from the primary contact when an order The order entry system resides
status must be checked. in System X; however, only
regional marketing and order
• All departments involved in the order cycle share a common database. management use the system
• If the company sells to distributors, its system is linked with individual to locate pricing information
distributors’ sales data. and input configuration
• Customers who place orders on a credit basis must have each order information. Sales and
approved by the credit department. systems engineering do not
use the system to perform their
Benefits: specific functions.
• Improved order cycle time.
• Reduced internal follow-up.
• Improved order process accuracy.
• Improved order status tracking and monitoring efficiency.

20
BEST PRACTICES

Key Internal Control Objective Company X Practice Rating Reference

4. Make decisions at the time of customer contact. The company does not Action Item
• The customer contact representative is empowered to make most currently have a systematic #5
decisions regarding customers while taking orders. process to ensure that
complete configuration
• The company has a system mechanism by which it can monitor information is provided by the
representatives to ensure that they adhere to preset credit/discount customer prior to the purchase
authorizations. order being submitted to
• In most cases, calls from customers with questions about order status systems engineering.
must be referred to someone other than the customer contact
representative. Systems engineering should
be involved in the quoting
Benefits: process to ensure that
• Reduced need for customers to call in. customers are provided with
adequate configuration
• Reduced time spent answering questions and taking orders. information before purchase
• Eliminated frustration. orders are submitted to
Company X.
• Faster customer decision process times.

21
BEST PRACTICES

Key Internal Control Objective Company X Practice Rating Reference

5. Establish and periodically re-evaluate long-term agreements Contract operations is Action Item
between customers and the company. currently attempting to institute #3
• The company makes an effort to identify customers to establish long- a formal contract and
term contracts with. agreement review process to
ensure that terms and
• The company jointly decides with the customer on the terms and conditions of contracts and
conditions of the sale that should be expected of both the company and agreements are clear and
the customer. understood by all parties.
• Terms and conditions of sales in general and for specific customers are
reflected in the company's order processing system.

Benefits:
• Improved customer relations.
• Ability to cooperate with customers on price, service and quality.
• Ability to estimate product demand.
• Increased customer satisfaction.
• Eliminated expectation gaps.
• Reduced customer claims for non-conformance.

22
APPENDIX B: INTERNAL CONTROL ASSESSMENT
The matrix on the following pages lists process controls that should be present within the warranty/field services environment. We evaluated
the adequacy of each control in Company X’s warranty/field services process.

Controls were evaluated as follows:

Strong Controls: Controls are present to mitigate process/business risk and are operating effectively and efficiently.

Moderate Controls: Controls are present to mitigate most process/business risk, but management should evaluate
 opportunities to enhance existing controls.

Limited Controls - Existing controls may not mitigate process/business risk, and management should consider implementing a
6 stronger control structure.

Where possible improvement can be made in the control structure, a reference has been made to the Action Matrix, where management’s
change implementation plan is described along with the responsible party and estimated implementation timing.

23
INTERNAL CONTROL ASSESSMENT

Key Internal Control Objective Page Priority

1 Discounts should be approved by appropriate personnel. 25
Use comprehensive control documentation to ensure that all relevant sales order information is captured on
2 26
quotes and purchase orders prior to processing.
3 Standard quote request forms should be used when obtaining quotes. 27
Sales order information on quotes should be reviewed by the appropriate personnel prior to final distribution
4 28
to the customer.
5 Shipping logs should be filled out completely and maintained on a daily basis. 29

24
INTERNAL CONTROL ASSESSMENT

Key Internal Control Objective Company X Practice Rating Reference

1. Discounts should be approved by appropriate personnel. It was noted during our review Action Item
• Discount authorization forms should be signed and dated by the that standard authorization #2
appropriate personnel. documentation for discounts
was missing or incomplete.
• Discount authorization forms should be filed with the applicable
purchase order or contract. The sales authorization matrix
on the company’s intranet
Business Impact: states that all discounts
• Discount authorization policies and procedures protect the company’s greater than XX% must be
pricing strategy and provide management with visibility over the signed by either the CEO or
discounts given to customers. the COO.

Train applicable sales

personnel to ensure that
discount authorization is
obtained prior to providing
discounts to customers.
Additionally, make sure that
approved discounts are
supported by the appropriate
documentation.

Management should also

evaluate and update the
current discount authorization
matrix/policy for relevancy.

25
INTERNAL CONTROL ASSESSMENT

Key Internal Control Objective Company X Practice Rating Reference

2. Use comprehensive control document to ensure that all relevant Order management currently Action Item
sales order information is captured on quotes and purchase orders uses a clean book checklist # 5,6
prior to processing. (CBC). The CBC ensures that
• Ensures that all the necessary information is obtained on the purchase the PO contains all the
order for entry into the system. necessary information for entry
into the system. However, the
• Provides accountability and allows management to track breakdowns in CBC does not require that all
the process. necessary configuration
• Ensures that all the correct information is on the quote before it is information be on the purchase
distributed to the customer. order before entry is made into
the system.
Business Impact:
• Improved cycle time from quote to entry into the order backlog. According to the quote
completion process map
• Improved process efficiency. (Date), sales personnel should
• Control points to ensure all information is complete and accurate. complete a CBC for the quote
before they distribute it to the
customer. However, this is not
done consistently.

26
INTERNAL CONTROL ASSESSMENT

Key Internal Control Objective Company X Practice Rating Reference

3. Standard quote request forms should be used when obtaining Per discussion with the senior Action Item
quotes. regional marketing #5
• Ensures that all the information needed by regional marketing, order representative, a standardized
management and systems engineering is provided by the sales quote request form has been
personnel on the front end of the sales order process. developed for sales personnel
but is not used consistently.
• Reduces the overall time spent obtaining the necessary quote
information from regional marketing. This form should be used to
ensure that complete and
Business Impact: accurate quote information is
• Improved overall sales order cycle time. captured from customers.
• More accurate and timely pricing and tool configuration information. Have sales personnel review
completed quotes for accuracy
and completeness.

27
INTERNAL CONTROL ASSESSMENT

Key Internal Control Objective Company X Practice Rating Reference

4. Sales order information on quotes should be reviewed by the Quotes generated by regional Action Item
appropriate personnel prior to final distribution to the customer. marketing for sales personnel # 4,5
• Quotes are reviewed by engineers to ensure that the product are not consistently reviewed
configuration is technically correct. by systems engineering.
• Systems engineering should interact with the customer (if necessary) Systems engineering should
early in the quoting process to ensure that the integrity of the quote be involved early in the quoting
process is maintained process to ensure that
customers are provided with
Business Impact: adequate tool configuration
• Improved process efficiency in the quoting process. information.
• Reduced number of purchase orders that need to be reconfigured.
• Accurate quotes for customers.

28
INTERNAL CONTROL ASSESSMENT

Key Internal Control Objective Company X Practice Rating Reference

5. Shipping logs should be filled out completely and maintained on a The shipping department does Action Item
daily basis. not consistently record the #8
• All information in the shipping log should be filled out daily at the time of carrier and routing number in
shipment. the shipping log on the same
day of shipment. Currently, this
• Shipping information allows the company to verify shipments for information is recorded the day
invoicing purposes and to track shipments once they have been sent. after the product actually
ships.
Benefits:
• Improved traceability on products shipped to customers. Detailed testing revealed that
• Complete and accurate shipping documentation. this information is often not
recorded in the shipping log.
Also, we were unable to locate
much of the source
documentation providing the
applicable information.

It should be noted that the

company is in the process of
determining the feasibility of
using an electronic shipping
log. Additionally, the company
is evaluating using bar code
technology for all shipments.
As such, all shipping
information will be
electronically recorded and
input into the company’s
information system.

29
APPENDIX C: SALES ORDER PROCESS MAP
Sales Representative
Requests a Quote
from Regional
Marketing
· Regional marketing obtains
product and pricing information
from product marketing.
 Sales representatives do not
use a standardized quote
request form.
A quote is sent to the sales
representative for review. This
review is not consistently
performed.
 Non-standard orders that are
not in the visibility system or in
the price book are sent to
system engineering for
configuration, even if the tool
has been created before.
 A known tool name report is
not distributed monthly to
regional marketing.
Quotes are not consistently
generated by product
marketing with system
engineering input.
Quotes are emailed to the
sales representative before
receiving system engineering
input.
· The sales representative
sends the quote to the
customer.
30
Customers Sends
Purchase Order to
Company X
· The PO is distributed to the  The PO is logged into the X
appropriate order management database that tracks the sales
specialist. order process.
· A folder is created to maintain
copies of the PO, CBC
checklist, X database log
sheet, order entry checklist,
any change order checklist,
copy of the fax sent to system
engineering (for non-standard
products), and any product
configurations.
Order Management
Specialist Reviews
PO and Enters it into
the System
 The order management
specialist utilizes the clean
book checklist (CBC) to review
the PO.
 If the PO fails the CBC, then
the order management
specialist will note the reason
why the item failed and who
the PO is sent to in regional
marketing.
 A standard form is not used to
communicate problems to
regional marketing.
 One copy is placed in the PO
folder and one copy is sent to
the appropriate regional
marketing personnel.
System Engineering
PO is Entered into
Determines
the System
Configuration
· When the PO passes the · When the PO passes the
CBC, it is entered into the CBC, it is entered into the
system as “System system.
Engineering.”
· The order management
specialist faxes the PO to
Person X in system
engineering.
 System engineering configures
the toll and emails the
configuration to the
appropriate order management
specialist.
 The order management
specialist enters the
information into the backlog.
Company X Control Points In Place:
· Process Step
 Internal Control Point (Manual)
 Internal Control Point (System-
Based)
Company X Control Weaknesses:
 Internal Control Weakness
 Process Inefficiency
APPENDIX C: SHIPPING/INVOICING PROCESS MAP
Product is
The Shipping Product is Pulled The Product is
Inspected by Packing Slips are Invoice is
Request Form from the Inventory Invoiced and
Quality Assurance Generated. Generated.
(SRF) is Created. Warehouse. Shipped.
(QA).
 Order management  The LPT line manager  QA inspects the product  Once SRF information  The packing slip is sent  A copy of the invoice is
enters the sales order provides a daily shipping and verifies that the has been verified, it is to invoicing and an mailed to the customer.
information into the sheet, which the finished information on the SRF entered into the system invoice is generated. Product loaded onto
system. goods coordinator matches the actual and a packing slip is  A copy of the invoice is freight carriers is not
 Regional marketing reviews and matches up items on the shipping generated. sent to the shipping floor being sufficiently
creates a shipping to the SRF details. floor.  The packing slip is used (for international monitored as it’s loaded.
request form (SRF)  The finished goods QA is using the SRF to create the invoice. shipments) and is The daily invoice log is
based on the sales order coordinator then rather than the packing Packing slips are not attached to the product not getting matched to
information within the examines the serial slip to verify the serial being reviewed/checked being shipped, along the shipping log.
system. The SRF numbers on the goods to numbers. with all of the other
against the SRF.
triggers the shipping be shipped and writes shipping documentation.
process. the serial numbers on
 A copy of the SRF is the SRF.
sent to the finished  The items on the SRF
goods coordinator. are allocated
 Some SRFs are created (transferred from
manually because of finished goods) to the
sales order.
efficiency limitations.
 The serial number is  Finished goods not
assigned to a product on already on the shipping
the manufacturing floor. floor are pulled from the
inventory warehouse.
Serial numbers are
 The SRF is then passed
duplicated or are
incorrectly assigned. on to quality assurance
for review.
Serial number Company X Control Points In Place:
information is still · Process Step
manually transferred on  Internal Control Point (Manual)
some of the shipping
docs, and is therefore  Internal Control Point (System-
subject to human error. Based)
Company X Control Weaknesses:
 Internal Control Weakness
 Process Inefficiency

31
APPENDIX C: PROPOSED SALES ORDER NON-TOOL-
BASED PROCESS MAP
Sales Representative
Requests a Quote
from Order
Management
 The sales representative
requests a quote for tool and
non-tool products from regional
marketing, utilizing the
standard quote request
template.
 Standard product pricing
information is obtained from the
product marketing system.
 A quote is sent to order
management for technical
review.
 The quote is then forwarded to
the sales representative for
order completeness review.
· The sales representative sends
the quote to the customer.
32
Customers Sends
Purchase Order to
Company X
· The PO is distributed to the
appropriate order management
specialist.
· If the PO is new, a folder is
created to maintain copies of
the PO, CBC checklist, X
database log sheet, order entry
checklist, any change order
checklist, copy of fax set to
systems engineering (for non
standard products), and any
product configurations.
 There are no policies or
procedures in place that
indicate the proper way to
receive/process a PO, to
maintain a folder, what to put in
the folder, and what to enter
into the system.
Order Management
Specialist Scrubs PO PO is Entered into
and Enters it into the the System
System
 The PO is logged into the X · When the PO passes the CBC,
database. it is entered into the system.
 The order management
specialist utilizes the clean
book checklist (CBC) to review
the PO.
 If the PO fails the CBC, then
the order management
specialist will log the reason
why the item failed and who the
PO is sent to.
 One copy is placed in the PO
folder and one copy is sent to
the appropriate regional
marketing personnel.
· The order management
specialist fills out the standard
CBC fail sheet and sends the
PO to regional marketing.
· This process is completed until
the PO passes the CBC.
Company X Control Points In Place:
· Process Step
 Internal Control Point (Manual)
 Internal Control Point (System-
Based)
Company X Control Weaknesses:
 Internal Control Weakness
 Process Inefficiency
APPENDIX C: PROPOSED SALES ORDER TOOL-
BASED PROCESS MAP
Sales Representative
Requests a Quote from
Order Management
(Known)
 The sales representative
requests a quote for tool and
non-tool products from
regional marketing, utilizing
the standard quote request
template.
 Regional marketing looks for
the requested tool in the
visibility system, the price
book, and the known tool
name report (provided by SE).
 Standard product pricing
information is obtained from
the product marketing system.
 A quote is sent to order
management for technical
review.
 The quote is then forwarded to
the sales representative for
order completeness review.
· The sales representative
sends the quote to the
customer.
33
Sales Representative
Requests a Quote from
Order Management
(Unknown)
 The sales representative
requests a quote for tool and
non-tool products from
regional marketing, utilizing
the standard quote request
template.
 Regional marketing looks for
the requested tool in the
visibility system, the price
book, and the known tool
name report (provided by SE).
 If the tool is not found, it is
sent to systems engineering
for configuration.
· A quote is generated.
 The quote is sent to order
management for technical
review.
 The quote is then forwarded to
the sales representative for
order completeness review.
· The sales representative
sends the quote to the
customer.
Customers Sends
Purchase Order to
Company X
· The PO is distributed to the
appropriate order management
specialist.
· If the PO is new, a folder is
created to maintain copies of
the PO, CBC checklist, X
database log sheet, order
entry checklist, any change
order checklist, copy of fax set
to systems engineering (for
non standard products), and
any product configurations.
 There are no policies or
procedures in place that
indicate the proper way to
receive/process a PO, to
maintain a folder, what to put
in the folder, and what to enter
into the system.
Order Management
Systems Engineering
Specialist Scrubs PO
Determines
and Enters it into the
Configuration
System
 The PO is logged into the X · When the PO passes the
database. CBC, it is entered into the
 The order management system as “Systems
specialist utilizes the clean Engineering.”
· The order management
book checklist (CBC) to review
the PO. specialist faxes the PO to
(Name) in systems
 If the PO fails the CBC, then
the order management engineering.
specialist will log the reason  Systems engineering
why the item failed and who configures the toll and emails
the PO is sent to. the configuration to the
appropriate order management
 One copy is placed in the PO
specialist.
folder and one copy is sent to
the appropriate regional  The order management
marketing personnel. specialist enters the
· information into the backlog.
The order management
specialist fills out the standard
CBC fail sheet and sends the
PO to regional marketing.
· This process is completed until
the PO passes the CBC.
Company X Control Points In Place:
· Process Step
 Internal Control Point (Manual)
 Internal Control Point (System-
Based)
Company X Control Weaknesses:
 Internal Control Weakness
 Process Inefficiency
APPENDIX C: PROPOSED SHIPPING/INVOICING
PROCESS MAP
Product is moved
from manufacturing
to the finished goods
area and inspected
by QA.
 Each manufacturing line
provides regional marketing
with an accurate lead time
report indicating product
availability.
 The serial number is input into
the system at the front end of
the shipping/invoicing process
(at the end of the
manufacturing process).
 QA examines the product to
ensure that it matches the
pick/pack slip (part #, serial #,
etc.) and goes through the
remaining QA checklist.
Regional marketing
coordinates orders
with available goods.
 Regional marketing
coordinates orders from
customers with the finished
goods availability and
manufacturing backlog.
 Regional marketing assigns
finished goods with orders and
established what is available
for shipment on a daily basis.
 Orders are allocated to
finished goods by regional
marketing.
 The finished goods coordinator
prints out a list of goods to be
shipped each day and
generates the pick/pack list for
these goods.
Product is pulled
from the finished
goods inventory.
 The pick/pack slips are used
to pull the products from
inventory.
Product is packed
and prepared for
shipment.
 QA performs final quality and
documentation checks.
 Pick list goes to the traffic
coordinator to print the packing  Invoicing receives copies of
slip.
 The goods are packed, boxed
and prepared for shipment.
 The necessary shipping
documents are attached to the
shipment (e.g., packing slip,
invoice).
 For international shipments, a
shipping employee can
generate a copy of the invoice
at the shipping dock location
using software package.
The product is
invoiced and
shipped.
 The product is loaded onto the
freight forwarders and
shipped.
the shipping documentation so
that any remaining invoices
can be generated and sent to
the respective customer.
 For shipments via Power
Freight, invoicing sets up an
intermediate invoicing location
and invoices the intermediate
location.
 Once a copy of the signed
freight document is returned to
invoicing (indicating final
shipment), the invoice is
transferred out of the
intermediate location and is
closed to the regular revenue
account.

Company X Control Points In Place:

· Process Step
 Internal Control Point (Manual)
 Internal Control Point (System-
Based)
Company X Control Weaknesses:
 Internal Control Weakness
 Process Inefficiency

34
APPENDIX D: TESTING MATRIX
The following matrix documents the audit tests performed related to the sales order process review, and the results of these tests. Overall,
opportunities exist to improve the process. These improvements will ensure that internal controls are operating effectively and efficiently in
order to mitigate risks associated with the process.

Test Attribute Tested Non-Compliance % Comments/Detail

Customer File to Verified that the customer file contained a Of the XX customer files tested, XX
PO copy of the PO and a signed X database contained a copy of the PO
entry form
Customer File to Verified that the customer file contained a Of the XX files tested, X did not contain an
Order Entry List completed and signed CBC and order entry order entry checklist
list
Customer File to Verified that the CBC was signed and Of the XX files tested, XX CBCs were not
CBC completed signed and one was not fully completed

System to Verified that the information on the PO was Of the XX sales orders selected, all XX
Customer PO accurately reflected in the system contained the proper information from the
PO
Shipping Log and Verified that shipments had proper weigh bill Of the XX log entries checked, X did not
Supporting documentation have supporting weigh bill documentation
Documentation
Shipping Log and Verified that shipper documents were Of the XX shipper documents checked, X
Supporting properly authorized or signed did not have signatures
Documentation
Shipping Log Verified that the shipping log contained a Of the XXX log entries checked, XX did not
carrier name and weigh bill number have carrier information or a weigh bill
invoice number
Clean PO to Verified with system engineering that “clean” Of the XX clean POs tested, only X
Systems POs sent to them were actually “clean” contained the proper information for
Engineering systems engineering to configure the
product immediately
Master Price List Traced and agreed the list price from the Of the XX prices tested, X price
price book to the master price list in the discrepancy was noted
system

35
APPENDIX E: ACKNOWLEDGEMENTS
We would like to thank all Company X employees who assisted us in our work during this project.
We received input and assistance from the following people:
• Operations Controller
• Global Logistics Manager
• Regional Marketing Manager
• Contracts/Intellectual Property Manager
• Systems Engineer
• Systems Engineering Manager
• Project Specialist
• Information Technology Manager
• Order Management Specialist

36