The following is a list of possible errors or fraud (1 through 8) involving sales and controls (a. through k.) that may prevent or detect the errors or fraud:
Possible errors or Fraud
1. Goods are removed from inventory for unauthorized orders.
2. Credit sales are made to customers with unsatisfactory credit ratings.
3. Invoices are sent to co-participants in a fraudulent scheme, and sales are recorded for fictitious transactions.
4. Goods shipped to customers do not agree with goods ordered by customers.
5. Invoices are sent for shipped goods, but are not recorded in the sales journal.
6. Invoices are sent for shipped goods, and are recorded in the sales journal, but are not posted to any customer accounts.
7. Invoices for goods sold are posted to incorrect customer accounts.
8. Invalid transactions granting credit for sales returns are recorded.
Internal Controls
a. Customer orders are compared with an approved customer list.
b. Sales orders are prepared for each customer order.
c. Shipping clerks compare goods received from warehouse with details on shipping documents.
d. Prenumbered credit memos are used for granting credit for goods returned.
e. Goods returned for credit are approved by the supervisor of the sales department.
f. Approved sales orders are required for goods to be released from the warehouse.
g. Monthly statements are mailed to customers with outstanding balances.
h. Shipping clerks compare goods received from warehouse with approved sales orders.
i. Sales invoices are compared with shipping documents and approved customer orders before invoices are mailed.
j. Control amounts posted to the accounts receivable ledger are compared with the control totals of invoices.
k. Daily sales summaries are compared with control total of invoices.
Required:
For each error or fraud, select one internal control that if properly designed and implemented, most likely would be effective in preventing or detecting the errors and fraud. Each response in the list of controls may be used once, more than once, or not at all.