The focus of the report is to analyse the case of RCE Limited. The current sales system of the organisation is inefficient and requires a lot of effort from the sales team. There is no automated system due to which the chances of errors are high. There are a lot of gaps in the revenue cycle of the company due to which even the sales team is required to reconsider their efforts when putting the sales data in the system. The management of the company has developed different departments for warehousing, shopping and inventory control. Different departments increase the efficiency of the sales team. However, the sales team still uses old data to check the creditworthiness of the data. This even leads to loss of customers for the company as the efficiency of the business is less. Therefore, there is a need for the management to deploy an effective accounting information system such that the efficiency of the organisation is high in terms of processing sales data.
The Accounting Information System is vital for the organisation’s success. The organisations should invest in deploying efficient accounting information systems such that the sales data can be properly managed (Ashenden & Lawrence, 2016). The case of RCE Limited is about the inefficiency of the accounting system and mis management of the sales data. The revenue cycle of the company is extremely traditional and also there are high chances of errors. The chances of frauds and risks are high as the revenue cycle is managed by the sales team and not automated systems. Hence, there is a need for the company’s management to focus on a revenue cycle which is effective and strong. The key aim of the report is to analyse the financial and sales system of RCE Limited and comprehend the risks faced by the company in managing them.
“The additional cost required to establish separate departments for warehousing, shipping and inventory control is considered a necessary cost for the added benefit of control over inventory.” Discuss this statement in the light of the existing revenue cycle of RCE Limited.
Studies indicate that firms should focus on developing separate departments for different functions such as warehousing, shipping and inventory control (Demirkan, Demirkan &McKee, 2020). It is due to the fact that it increases the efficiency of the organisation but may add additional cost to the existing budget of the company. However, when firms manage to have separate departments for warehousing, shipping and inventory control than their efficiency is high. It helps in providing an overview of the production and also understanding the inventory effectively. The managers should have control of their inventory to save a considerable amount of money and also put best efforts. For instance, the managers are able to track the profit and losses well by understanding their inventory. The sales team needs to manage the patterns well by keeping a track of the inventory. The sales team should manage the internal stock well so that they do not have overstock or understock situations. Different departments may have a financial burden on the company, but the inventory control is high (Hacioglu & Sevgilioglu, 2019). The additional cost helps in providing benefits to the sales team of the company and also provides appropriate space to the company. To have proper control over the inventory, the team should have different departments for different functions.
At RCE Limited, different tasks are managed by the sales team itself and there is no automation of activities. As a result of this, coping with the demands of the customers and also sales objectives are tough. When there are different departments, the level of adaptability is high. This should be like an investment to the company and should not be considered a burden. Instead, it should offer a high return on investment which can manage different inventory control functions properly. At the end, the return on the company is high for this and ensures that the efficiency of the business increases.
Potential internal control weaknesses in the sales order processing procedures and cash receipts procedures of RCE Limited
The sales order processing of the organisation is inefficient and uses outdated information. The team needs to evaluate the creditworthiness of the organisation so that they can take the order from them or not. In the existing scenario, the sales team faces too much trouble due to the fact that they have access to old data and cannot differentiate between new and old customers (James, 2018). It is not possible for the sales team to determine if the new customers can be beneficial for them. There is a need for an automated system which can send the cash receipts to the sales team automatically and immediately as soon as order is placed. However, as new customers have been rejected so there is a need to put in place a system which can differentiate between the customers better. For this, even the database of the company should be updated by proper coordination with the accounts team of the company. The company’s cash receipts are vague and there are many activities that the sales personnel have to perform. The salesperson has to organise the mail and combine the documents at the end. Therefore, the chances of mistakes are high. For this, the company needs to deploy an automated system which can evaluate the entries before sending them to the sales team. Currently, the sales personnel of the firm do not review any entry before sending to the sales team. As a result of this, there are problems when the managers have to develop financial statements for calculating the profits and losses. There is a need for ensuring that the data is highly authentic and should be evaluated before sending to the sales team in an efficient way (Kaplan et al. 2015).
Potential risks associated with the internal control weaknesses identified in Section (2) above.
The existing sales system of the organisation is weak and inefficient. As a result of this, there are many risks associated with internal control weaknesses.
- One of the risks in the internal control weaknesses is the chance of human errors in the sales process of the company. There is no system in the firm which can handle the massive amount of data. The sales personnel carry out repeated tasks in the sales process of the company over and over again due to which the chances of errors are high. There is no system with the sales team to review the customer order entries due to which there is a high chance that the team can make a lot of mistakes either intentionally or unintentionally. The sales personnel can also add wrong entries for the customer orders that can make the calculations wrong. The sales data can be accessed by anyone as there is no data encryption at all (Mosteanu, 2020).
- The disappointment among customers can be high. The key reason behind this is the sales team is using old data for evaluating the worthiness of the customers. Two years back, the sales team had asked customers’ data from the account department and they have been using the same data till date to evaluate the customers. Hence, there have been many chances where even new customers have been rejected by the sales personnel. Hence, the company can lose many customers like this. There is a need for the accounts team to provide updated customers’ data to the sales team so that there are no rejections for the sales team. If the sales team keeps rejecting new customers using old data, it can lead to a lot of problems for the company and the image of the company can be ruined (Nobles, 2018). The customers will have a perspective that the sales team of the firm is inefficient as they cannot differentiate between good and bad customers. Also, the company has no efficient system to evaluate the credit worthiness of the company. Hence, the image of the company is at stake.
- The third task for the company is high mathematical calculation mistakes in the sales data as the sales personnel files the copy of the customers’ orders themselves and does not review the data when reporting to the sales team. This increases the chances of errors in the reporting. The company can develop inefficient financial reports and cannot even determine appropriate profits and losses (Onwubiko, 2015). Therefore, there is a need for a new and automated accounting information system which can report the sales data to the team without any need to include any human help. When there is a system managing the entries and sales data then the chance of errors is very low, and efficiency is high.
It is crucial to take strategies to manage the risks and ensure that there is proper management of the sales data.
Different types are frauds are possible
At RCE Limited, there are several frauds that can be experienced by the company in future. Some of the frauds for the firm are as follows.
- Duplicate order receipts and bills: The first fraud which can take place at RCE Limited due to the current sales system is sales personnel making duplicate order receipts and bills. This fraud is common in the organisations due to which the sales team has to ensure that the entire system is automated, and the system can generate the order receipts and bills (Phillips & Tanner, 2019). In such cases, sales personnel cannot mishandle the documents and avoid any type of fraud.
- Data breach: The second fraud which is possible at RCE Limited is data theft or data breach. The sales data of the company can be stolen by unauthorised people due to lack of security and encryption. This can lead to massive loss to the business (Zerlang, 2017). Therefore, there is a need to provide additional security layers to the sales and other crucial data of the organisation. This can ensure that no unauthorised person can access the data of the company. The data can be used by the sales personnel for any personal benefit.
- Problems in financial documents: Due to high involvement of the sales team in developing financial documents and providing entries to the sales team, there is a high chance that they develop wrong profit and loss statements. There is a need for the management to focus on increasing the security of the documents and ensure that the sales personnel have to take proper approvals to access the data in an effective way. This can ensure that the financial statements are not manipulated or forged by the sales personnel. The sales manager should ensure that all documents are password protected else it can lead to a lot of problems for the management of the company.
These are some of the frauds that can take place in the organisation. There is a need for the company’s management to invest in a new system which can deal with these frauds and provide an additional security layer to the data of the company in an efficient way.
The report concludes that the organisation in the case needs to deploy a new accounting information system which has automated sales process and also receipts. With a new AIS, there is hardly any opportunity with the sales personnel to manipulate the data. The report has also determined different risks of the existing system used in the organisation. There is a need for the management to ensure that the new system manages the repeated tasks well and also the sales team is trained to work with it. The report has also provided recommendations for the company to cope with the gaps in the current system of the firm. These recommendations include deploying a new accounting system which can automate the accounting activities of the company and add an extra security layer to the sales of the data of the company. These steps can help in managing the inefficiencies in the sales data of the company.
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