Question

Sultona check the flow Mid-term Analysis #3: Last year, Gold Rock LLC. purchased over $10 million worth of office equipment under its "special ordering system, with individual orders ranging from $5,000 to $30,000. Special orders are for low- volume items that have been included in a department manager's budget. The budget, which limits the types and dollar amounts of office equipment a department head can requisition, is approved at the beginning of the year by the board of directors. The special ordering system functions as follows: Purchasing: A purchase requisition form is prepared and sent to the purchasing department. Upon receiving a purchase requisition, one of the five purchasing agents (buyers) verifies that the requester is indeed a department head. The buyer next selects the appropriate supplier by searching the various catalogs on file. The buyer then phones the supplier requests a price quote and places a verbal order. Avem prenumbered purchase order is processed, with the original sent to the supplier and copies to the department head, receiving, and accounts payable. One copy is also filed in the open-requisition file. When the receiving department verbally informs the buyer that the item has been received, the purchase order is transferred from the open to the filled file. Once a month, the buyer reviews the unfilled file to follow up on open orders. Receiving the receiving department gets a copy of each purchase order. When equipment is received, that copy of the purchase order is stamped with the date and, if applicable, any differences between the quantity ordered and the quantity received are noted in red ink. The receiving clerk then forwards the stamped purchase order and equipment to the requisitioning department head and verbally notifies the purchasing department that the goods were received. Accounts Payable: Upon receipt of a purchase order, the accounts payable clerk files it in the open purchase order file. When a vendor invoice is received, it is matched with the applicable purchase order, and a payable is created by debiting the requisitioning department's equipment account. Unpaid invoices are filed by due date. On the due date, a check is prepared and forwarded to the treasurer for signature. The invoice and purchase order are then filed by purchase order number in the paid invoice file. Treasurer: Checks received daily from the accounts payable department are sorted into two groups: those over and those under $10,000. Checks for less than $10,000 are machine signed. The cashier maintains the check signature machine's key and signature plate and monitors its use. Both the cashier and the treasurer sign all checks over $10,000. Required: a. List at least 2 strengths and all weaknesses in the company's internal control procedures. For each weakness, suggest at least one improvement. Be specific in your explanations. b. Describe any benefits that installing newer IT systems may have within this process. Be specific as to how IT systems could benefit each of the processes described, or how they could eliminate any weakness identified per item a. c. Please be original. In other words, do not use material from the internet unless you quote your sources. Upload to Blackboard by 12:30 PM, January 14, 2020.

Answer 1

Ans.(a). 2 strengths in the companies internal control procedures are:

(i) Purchase orders are pre-numbered.

(ii) Orders can be approved only by department heads.

Weaknesses in the companies internal control procedures are:

(i) Verbal order being placed

(ii) Verbal information of goods received

(iii) Unfilled file sent every one month

(iv) Cheque signing machine key being kept withe cashier.

Ans.(b). Benefits that installing a new IT system within the process will have are as follows:

(i) Purchasing- Everything will be done by IT system. Therefore, there will not be any scope for verbal information.

(ii) Receiving- Everything will be done by IT system. Therefore, there will not be any scope for verbal information.

(iii) Treasurer- The cheque signing machine key will be kept secured with the treasurer himself thereby avoiding any scope for cash manipulation.