The implications of this status
Omega Sports Supply, LLC is a medium-sized, private
wholesaler that purchases sports equipment from various
manufacturers and distributes to retailers in the Midwest.
Christina Ruiz, VP of Operations at Omega Sports (and friend
of yours), has asked you to analyze the business processes
associated with the company’s revenue and expenditure
cycles with a particular emphasis on internal controls. She has
provided you with various diagrams for your review (pages 3-
6). Briefly scan over this information and then respond to the
following prompts.
1. Recall that Omega Sports is a private company. What are the implications of this
status as it relates to the company’s legal responsibility to account for the
effectiveness of its system of its internal controls?
Revenue Cycle
Christina expresses to you that one issue Omega Sports is currently facing relates to the billing
function which is handled manually by a mistake-prone employee. A growing number of
frustrated customers are reporting invoice errors. For example, one shipment of tennis rackets
priced at $1,200 was listed on the customer invoice at $120,000. In another instance, a customer
ordered and (correctly) received a shipment of low-end golf clubs but was billed (incorrectly)
for a much more expensive, premium brand. Christina doesn’t want to fire the employee but
realizes that failing to resolve this issue could lead to a loss of customers.
2. What data entry/input controls could you recommend that specifically address either
of these billing errors?
3. Review the Data Flow Diagram of revenue cycle activities (Figure 1), noting any
violations of best practices.
4. Review the BPMN diagram of revenue cycle activities (Figure 2). Are there any
activities performed by one department that should be handled by two?
Expenditure Cycle
Christina further expresses that she is worried about the threat of kickbacks in the procurement
process. While she is unaware of any issues currently, she remembers horror stories from
college where unethical purchasing agents accepted gifts from suppliers who were able to
dramatically increase their prices. Christina asks for your advice on how to prevent or detect
such behavior.
5. What control activities can help address the threat of kickbacks?
6. Familiarize yourself with the BPMN diagram of expenditure activities (Figure 4), noting any diagramming errors.
7. In what way(s) do expenditure cycle activities at Omega Sports violate principles of segregation of duties?