Question

1.Supplier invoices are received in the accounts department via email and printed. The details are entered into the accounts payable system by the accounts payable clerk, who then stamps the invoice as processed. The computer system automatically calculates the payment due date based on the supplier's credit terms that have been entered into the system.

2.As there are only a few suppliers each week, the accounts payable clerk validates the outstanding invoices via a phone call with the production manager. The production manager has an excellent memory for what he has ordered, and the deliveries received.

3.The computer system automatically generates a weekly list of invoices due for payment. The accounts payable clerk flags the invoices for cheques to be processed as direct deposits are not used. The system does allow the user to exclude an invoice from the payment run. The accounts payable ledger and general ledger are automatically updated once the payment runs are complete

4.The cheques are forwarded to the financial controller for signature. Supporting documentation is only attached to the cheques for non-major suppliers. The financial controller calls the production manager to verify the review process (step 2) has taken place, and other payments are verified to the attached invoice. If the financial controller is not available the accounts payable clerk usually has the cheques signed by the marketing manager. The payables clerk avoids asking the CEO to sign cheques as he asks too many questions. Any supporting documentation to the cheque is signed to avoid duplicate payment.

5.Monthly statements are received from the suppliers. However, the accounts payable clerk does not believe statement reconciliations are necessary.

a-Identifies and explains ten (10) control weaknesses associated with the purchases, accounts payable and payments system outlined above

b-Identifies and explains the account balance assertions for raw material inventory and accounts payable that are most impacted by control weaknesses

c-Recommends and justifies a control improvement for each of the weaknesses identified in requirement one

Answer 1

Sr. No	(10) control weaknesses associated with the purchases, accounts payable and payments system outlined above	Recommends and justifies a control improvement for each of the weaknesses identified in requirement one
1	Supplier invoices are received in the accounts department via email and printed. Weakness: Unauthorized, Unnecessary and fraudulent payment. No authorization of invoice Payment made for the item and service not provided.	Solution: Proper authorized invoice should be forwarded by the stores department to accounts department for processing. The invoice should be supported by proper purchase order. The invoice will be processed only after the goods are received in the Stores.
2	Can select wrong supplier for input of invoices. Processing input of invoices with no order.	All the invoices should be supported by proper purchase order. The purchase order number should also be mentioned on the invoice.
3	the accounts payable clerk validates the outstanding invoices via a phone call with the production manager The production manager has an excellent memory for what he has ordered, and the deliveries received. Weakness: Goods may not be as per the expectations. Goods may be priced incorrectly Production manager may deny after words on receipt of the goods.	Invoice should be matched with receipt quantity (input by stores department) to confirm goods received. Queries should be generated if receipt quantity does not match. Production manager may not held responsible and accountable.
4	Processing of unauthorized invoice in to the system. Goods may not meet the quality requirement.	Invoices must be authorized by the manager of the department who requested the goods or service.
5	The cheques are forwarded to the financial controller for signature. Supporting documentation is only attached to the cheques for non-major suppliers Weakness: Payment not put through checking procedure. Incorrect payment processing	Cqeque should be manually signed. All the cheque should be supported by the proper document. Bank reconciliation statement should be independently reviewed and reconciled.
6	If the financial controller is not available the accounts payable clerk usually has the cheques signed by the marketing manager. The payables clerk avoids asking the CEO to sign cheques as he asks too many questions. Weakness: Payment authorized by wrong person. No authorization limit (between CEO and Marketing manager) No clear definition as who is responsible for payment processing.	Bank mandate should specify those persons who are authorized to sign the cheque. There should be authorization limit to sign cheque.
7	Segregation of duties.	Responsibility of recording payment should be different than the payment production.
8	The Balance of the supplier disagrees with the balance in the general ledger accounts.	Reconciliation should be prepared between the AP ledger and GL control accounts. It should be approved by the accounts manager. Wherever possible properly carry reconciliation with supplier statement.
9	Unauthorised alteration	Access to the payment filed Cheques should be properly controlled.
10	Accruals and prepayment is not correct	Supplier statements are reconciled properly. At cutoff date a system operates to collect the information of unrecorded liability.