BPL Ltd is a small local retail company. The company sells a branded clothing range for 18–30 year olds.
During the past financial year (year ending 31 December 2005) the company had an annual turnover of £1.5m and an annual net profit of approximately £700,000.
The company has two retail outlets located in Manchester and Oxford, and employs five part time sales assistants, one administrator and one manager.
Currently, sales are either over the counter sales at either retail location, or mail order sales from the company’s annual catalogue. Over the counter sales can be for cash, credit/debit card payment or payment by cheque. Mail order sales can be for credit/debit card payment and/or cheque payment only. All mail order sales are processed at the company’s Manchester retail outlet. Last year 42% of the company’s turnover was from mail order sales.
For credit/debit card related sales, the company operates a chip and pin based ePOS (electronic point of sale) system. All over the counter sales are processed by the sales assistants. All mail order sales are recorded by the administrator.
Mail order sales are only accepted from authorised customers. These customers are authorised by the manager in advance and are allowed 45 days’ credit. In the past financial year, however, the manager authorised the write off of £86,000 for bad debts arising from non payment by mail order customers. Estimates for the current financial year suggest that bad debt write offs may exceed £100,000.
The manager has become increasingly concerned about the growing level of bad debts, and is exploring the possibility of developing an internet based e commerce facility to replace its catalogue based mail order facility, and eliminate ever increasing levels of bad debt.
Required
Describe the main function of a sales system for a company such as BPL Ltd and explain the inherent risk associated with the failure of internal controls within such a system.