Accounting Information Systems: The Processes and Controls, 2nd Edition

RISKS AND CONTROLS IN THE SALES RETURN PROCESSES (STUDY OBJECTIVE 3, continued)

In terms of the five internal control activities, the following specific controls should be implemented over the sales returns process:

AUTHORIZATION OF TRANSACTIONS

Certain designated individuals within the company should be assigned the authority to develop sales return policies, authorize sales returns, and approve credit memos. Others within the organization should recognize these specific individuals and should not process returns if they have not been approved by a designated person.

Exhibit 8-9 Document Flowchart of a Sales Return Process

Exhibit 8-10 Sales Return Processes Data Flow Diagram

SEGREGATION OF DUTIES

For sales returns, an effective system of internal controls segregates individuals with authoritative duties (such as those already discussed) from those responsible for recording (initiation of the credit memo and preparation of the credit memo journal) and custody (receiving the returned products and transferring them to the proper area in the warehouse). Ideally, anyone who performs a credit memo activity should not also be responsible for data entry, credit approval, shipping and handling inventory, billing, information systems, or general accounting.

ADEQUATE RECORDS AND DOCUMENTS ...