1. The production manager, Nick Wang, is responsible for initiating orders for inventory. The system sends Nick an email alerting him of the stock falling below 65% of the previous month's usage. He then generates a pre-numbered purchase order (PO). He can also adjust the quantities on the purchase order when he anticipates increases or decreases in sales. The purchase order is then sent to the purchase clerk Ray Kim via email.
2. For inventory orders, Ray normally sends the purchase orders directly to their approved suppliers. The suppliers will then send Ray a confirmation of items and quantities and an estimated date for the parts to be delivered. When the confirmation is received, Ray will log on his computer, finds the relevant PO initiated by Nick and select the supplier's name on the PO and then click on the box "sent to suppliers".
3. If a PO cannot be filled by any of the approved suppliers, Ray may look for a new supplier. When he obtains a quote from a new supplier, he passes the quote and the new supplier's information to his manager, Barry Sadler for approval. Once approved, Barry will add the new supplier into the approved supplier list.
4. Jasmine Lee Ltd requires their suppliers to attach a Delivery Note (DN) with inventory they ordered. DN should have a reference to the relevant PO number and shows the quantities and items being delivered. When a delivery arrives at the warehouse, the warehouse assistant Gordon Scully will reject the delivery if there is no PO on it or the PO number is invalid. Gordon reconciles the DN to the relevant PO on the computer to match items and quantities. Once it is confirmed, Gordon initials and dates one copy of the DN and then passes it to Gary Chen the warehouse manager.
5. When Gary receives the DN, he logs on to a computer and updates the PO to be "received" and the computer is requested to print a pre-numbered Goods Receiving Report (GRR). The computer retrieves a list of the items ordered from Purchase Order Master file and supplier details in the Supplier Master file to check for accuracy and then prints the GRR. Gary then counts the actual items against the GRR. Once all items are counted and checked, Gary updates the inventory record to reflect the actual items and quantities that have been received. When updating inventory, the computer asks for the relevant PO, if the computer accepts the PO number, it automatically displays the ordered items and quantities and ask Gary to confirm. After Gary updates inventory, the system will generate a journal (Note: the journal posted by the system is to Dr Raw materials inventory; Cr Creditor.). Gary then writes the journal number on the GRR and signs it. The signed GRR together with a copy of DN are left in a tray on the desk of Ray.
6. If discrepancies are found between the DN and the results from the actual counting, a copy of the GRR and DN will be passed to Ray to contact the suppliers. Inventory will not be updated until the discrepancies are sort out.
7. Ray receives all supplier invoices. Suppliers include the relevant PO number on their invoices. On receipt of an invoice, Ray agrees the details on supplier's invoice against the relevant PO. If they agree, he sequentially numbers the invoice based on its due date to ensure that it will be paid within discount period. If there are no discrepancies, he prepares a payment requisition for the invoiced amount and forwards the payment requisition, with the invoice attached, to Barry Sadler for authorisation.
8. Barry signs the payment requisitions to confirm authorisation and forwards the documentation to the banking clerk, Toni Burton who keys the payments into the payment journal (the journal posted by the system is Dr Creditor; Cr Bank). The system generates a journal number which Toni writes on the payment requisition to make sure the account payable balance is updated. Toni files the payment requisitions with the supporting documents.
9. Toni then loads the payments on the online banking facility with reference to the payment requisition number. Barry must approve and release the payments. The banking system automatically sends electronic transfer records to Barry who subsequently forwards them to Ray. Ray checks it against supplier invoices and then sends a remittance advice to individual suppliers.
Required:
a) Identity SIX control strengths of the purchases and payments system.
b) For each control strength, explain what the purpose of the control (i.e what does the control prevent or detect).
You may use the following format to present your answer.
Internal control strengths
Identify a control strength (a)
The purpose of the control (b)
c) Identity FIVE control weaknesses of the purchases and payments system.
d) For each control weakness, explain its potential consequence/implication and provide a suggestion for improvement.
You may use the following format to present your answer.
Internal control weaknesses
Identify a control weakness (c)
Consequence/Implication and suggestion for improvement (d)
