Bokka Ski Line, Inc. documentation and internal control weaknesses.
Required:
a. Draw a process map of the conversion processes at Bokka.
Draw a document flowchart showing the records used in Bokka’s conversion processes.
b. List any strengths and weaknesses in Bokka’s internal control procedures. For each weakness, suggest an improvement.
SOLUTION
a. Refer to the separate Microsoft Excel file “Chapter 11 Solutions Documentation.xls”.
b. Refer to the separate Microsoft Excel file “Chapter 11 Solutions Documentation.xls”.
Weakness: Ted Drescoll, in the storeroom has physical custody of inventory and also maintains inventory records. Improvement: Assign the maintenance of inventory records to a person who does not have access to inventory.
Weakness: Thom Ells prepares authorization documents such as production schedules and production orders, and he also manages the production process. Improvement: Ideally, the authorization to begin production should be segregated from those doing or managing the production.
Weakness: Ted Drescoll forwards his copies of the bill of materials and routing slips to cost accounting. Since these are the only copies that are forwarded to cost accounting, and since Thom has custody of inventory, he could steal inventory and alter these documents to hide the theft. Improvements: segregation of duties as mentioned in (i) above, as well as separate copies of the bill of materials and routing slips could be forwarded to cost accounting from production planning.
Weakness: Job cards are not reconciled to time cards. Improvement: Cost accounting should reconcile to lessen the chances or errors or fraud.
Weakness: There is no mention of an inventory subsidiary ledger. Improvement: An inventory subsidiary ledger should be maintained by someone who does not have authorization or custody functions within inventory. Ideally, an Inventory Control department would maintain such records, but this company may not be large enough to have a separate inventory control department.
Weakness: There is no mention of a reconciliation of the subsidiary ledgers to the general ledger. Improvement: An inventory subsidiary ledger should be reconciled to the general ledger.