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Finance, Exam

Audit and Risk Management

Audit and Risk Management

Identify and explain FIVE weaknesses in the sales system of CE Paints and the improvements you would advise to overcome these weaknesses

Weaknesses Implication Recommendation
Manual Ordering Many of the company’s customers are tradespersons, and they have accounts. However, they place orders through a telephone from the company’s catalog, both in hardcopy and available online. That limits the number of customers in a position to be served in a single day. The assistants must manually take the orders and write them down on a notepad. Such a strategy reduces the speed at which the customers are served. CE Paints should consider venturing into an automatic sales system. With technological advancements across the globe, people now prefer online sales to the manual option. It would be much better for the customers to order through the company’s website. Also, the company can serve more than one customer in a single go.
Labor Distribution The company’s sales system is primarily affected by the distribution of labor. Only two workers are overwhelmed by the work available in serving the customers. A single person takes the orders, prepares the discharge sheets, and packs the orders for delivery. Given the significant number of customers, such is too much work to be handled by a single individual. The company should focus on increasing the number of workers. Individuals should be responsible for receiving the orders, others should make the discharge sheets, and the rest should focus on packing the products for delivery. The process will be faster, and the customers will no longer complain of delays as there will be timely delivery.
Updates The sales system currently employed by CE Paint company does not allow them to inform the client of the availability of new products. The clients only make phone calls to place their orders for the already existing products. Such limits attract new customers and keep up with their utility. It would be advisable for the company to have an online sales system, such as an e-commerce system, on its website. With such a system, the company can update its clients on new products that will satisfy their utility level on the site. Also, from the website, the clients can compare the already available products before purchasing.
Security Risks Making payments by cash poses a risk to the business entity. The clients may be overcharged without the consent of Charlotte. Also, the absence of the enterprise owner, most days a week, makes it hard to manage the business enterprise. Monitoring the cash transactions would have been easy if the owner had been available. The company should implement a cashless payment option for clients visiting the store to make a purchase. The company can use an account number where the customers deposit their money and are given a receipt. However, it might be challenging to venture into a cashless transaction fully. Hence, the company should also implement a bar code reader-based system that will scan and detect the price of the product to be purchased.
Books of Accounts The company is only preparing a reconciliation statement. The statement is then compared to the bank statement for credibility purposes. However, a reconciliation statement is not the only book of accounts that can be used to detect errors and fraud. For effective operation, CE Paints company should also prepare other financial statements such as the balance sheets and the inventory. The financial statements will be relevant in determining the company’s financial position when making sales at a specific time.

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Identify and explain FOUR weaknesses in the purchases system of CE Paints and the improvements you would advise to overcome these weaknesses. 

Weaknesses Implication Recommendation
Accountability Accountability is a limitation of CE Paints, as no shop assistant is responsible for online purchases. The company allows any of them to purchase in their own free time. This strategy is risky as it is impossible to know who is accountable if an error is made during the purchase. Tom may blame Naomi, and Naomi can equally do the same. CE Paints should hire personnel responsible for online purchases of the company’s products. If the resources for hiring new staff are unavailable, then the duty should be assigned to one person between Tom and Naomi. That will allow the company to track the errors made in the event they occur quickly.
Payment on Purchase Trust is an essential component of a business entity. The fact that CE Paint is making online payments for the products purchased indicates that they trust the suppliers. However, the quality of the products delivered to them by the suppliers may be an issue as the payments have already been made. CE Paints should implement a payment plan where product payments are made after the delivery. That will allow them to assess the quality of the products delivered to them. The suppliers should write an invoice to the company for the payment to be made after the delivery.
Point of Purchase The point of purchase is a limitation as CE Paints only sources its products from the UK and other countries from the European Union. The products are sourced from oversea states, which is a good plan, but that might be affecting the cost of the products. Some of the products may have remained unsold due to the high price as they were shipped overseas. It would be best if CE Paints considers sourcing most of its products from the domestic market. The company should assess the quality of the products manufactured locally as they may be cheaper, of higher quality, and pocket friendly. The strategy will reduce the holding period of the products in the stores and the flash sale involving heavy discounting of the products.
Consistency The purchase system used by CE largely depends on the supplier’s website. Thus, there is a lack of consistency in the suppliers and hence the products available for sale by the company. Different suppliers have products with varying quality standards. Therefore, there is a possibility that the customers are no longer purchasing the product line due to the variation in the quality of the products. CE Paints should consider having contract agreements with their suppliers. The strategy will ensure consistency in the quality of the products they sell to their customers. They should identify a single supplier from the various options available and sign a contract with them for a specific product’s supply. Not only will there be consistency in the amount and quality, but the flow of the products will equally increase.

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Question 

Audit and Risk Management

SECTION A

YOU MUST ANSWER THE QUESTION IN THIS SECTION

Audit and Risk Management

Audit and Risk Management

QUESTION ONE

  • Your firm has recently been appointed external auditor of CE Paints (CE), which supplies painting and decorating products to customers all over London. CE is owned by Charlotte, a professional dancer who lives with her family in Basildon. Since the birth of her son eight months ago, Charlotte has been able to come to the shop for only one day a week.

Ordering and despatch

Eighty percent of CE’s sales are to tradespersons who buy in bulk regularly and have accounts with CE. The Account customers order from CE’s catalog by telephone, available in hard copy and online. Any one of the two shop assistants, Naomi and Tom, who takes the telephone call, writes down the order on a notepad. This information is later used to complete a standard sales order form.

The shop assistant who takes the order will pack the delivery box and enter the details of the completed sales order form into the computerized sales system. The system will generate a despatch note and a sales invoice. The despatch note is attached to the delivery box. The packed delivery boxes are deposited at the reception desk and picked up by 4 pm daily by a contracted delivery company.

Recent customer complaints have been about shortages of quantities received and delays in receiving their orders. To maintain customer goodwill, Tom normally sends credit notes to these customers.

Cash sales

Twenty percent of CE’s sales are made to individual customers who come into the shop directly to buy their supplies. These customers pay by cash or debit/credit card. Naomi operates the checkout machine and deposits cash at the bank when the cash in the till reaches £1,000. Naomi also prepares the bank reconciliation statement.

At the end of every month, Charlotte checks the bank pay-in slips against the online bank statements to ensure that cash is not being misappropriated.

Required:

  • Identify and explain FIVE weaknesses in the sales system of CE Paints and the improvements you would advise to overcome these weaknesses.

(b) CE buys all its products from suppliers in the UK and from countries in the European Union. Any one of the shop assistants, whoever happens to be free on a Friday afternoon, browses the suppliers’ websites and places orders for products that are in high demand by submitting purchase orders and payment via the Internet.

Charlotte has told her shop assistants to take advantage of all the suppliers’ special offers.

The suppliers are reasonably reliable, and orders placed usually arrive on time by Monday afternoon when Charlotte oversees the goods receipts herself before they are put in the store room at the back of the shop.

Recently, Charlotte has noticed that some product lines have remained unsold in the store for months. She has directed that they should be heavily discounted and sold at the shop.                                                  

Required:

  •  Identify and explain FOUR weaknesses in the purchases system of CE Paints and the improvements you would advise to overcome these weaknesses.