Reference no: EM133106853

Question: eShop is an online retailer of custom printed material, including stationery, corporate swag, and novelty items. Customers must create an account within the eShop platform, and all orders must be paid for by credit card. Credit card information is gathered at the time the order is placed, but the cardholder is not charged until the order has shipped.

eShop is planning to purchase a new accounting system, as it has outgrown the capabilities of the existing one. The managing director has asked for your advice on certain matters relating to the new computerized sales system.

The old system required AR clerks to produce sales invoices from shipping documents (usually emailed or faxed by a shipper), post them to the sales ledger, record payments received, and produce an aged analysis of accounts receivable (for orders where the credit card was rejected). The main weaknesses of the old system were that many documents, such as order confirmations or shipping notes, were either produced irregularly or contained errors.

With the new computerized sales system, the following is proposed:

• The customer sales order confirmation would be produced by eShop's online order platform, and transmitted directly to the sales system (no human processing).
• The production team accesses the order confirmations in the sales system to begin production.
• Once the goods have been printed and scanned into inventory, a delivery notification will be produced to say the goods are ready for shipment. This delivery notification will be sent to the shipping department, with a copy sent to the accounting department.
• Using the delivery notification, eShop's shipping department will prepare the goods for shipment, using the customer's preferred delivery method. The shipping department will prepare the shipping document using the new accounting system. The sales invoice will be produced by the system at the same time as the shipping document, using the information from the shipping document and prices per unit from a standing-data file. When the computer produces the sales invoice, it posts it to the sales ledger.
• After the shipping document and invoice have been produced, the customer's credit card will be charged.
• Receipt of payment from customers will be recorded on the sales ledger and in the cash receipts/disbursements journal in a similar way to the old system.
• Controls over access to the system will be by passwords and by restricting which individuals can perform certain tasks.

In view of the large number of shipments of goods to customers, the managing director wants to safeguard against credit card fraud, using as many automated controls as possible. When the computer system determines that goods should not be shipped to a customer due to a flagged fraud risk, the system will have a provision that allows the eShop's controller to manually override this decision and authorize shipment of goods to the customer.

Required:

a) Complete the table below for each itemized process by identifying one potential risk (what can go wrong), the assertion(s) at risk, and one control that can be implemented to prevent the potential risk.

b) Recommend two credit card fraud prevention controls that should be programmed into the computer system to prevent shipment of goods to fraudulent customers or fraudulent charges applied to customer credit cards.