Question

Sweets R Us Pty Ltd. is a large confectionary company that manufactures a range of standard sweet products and some specialty products for the Australian market. Most of the company’s production is in standard chocolate goods and they offer personalised packaging for promotional or fundraising purposes. They also provide uniquely moulded and decorated chocolate items for special events such as grand finals. You have been allocated the role of assessing the controls in the Purchases, Accounts Payable and Payments system, and have obtained the following details:

Raw material ordering process

1. To maintain and control product quality a limited number of trusted suppliers are used.
2. The production manager oversees raw material inventory. Orders are placed based on current production orders and quantities of raw material currently on hand with next day delivery where possible.
3. No formal purchase order system is used.

Raw material warehousing procedures

1. The warehouse personnel are trusted, long-term employees.
2. One of the warehousing staff ensures that all goods received, primarily raw materials, are in good order and signs the couriers’ delivery dockets in acknowledgment of materials received.
3. Movement of in and out of the warehouse is not recorded, but the production manager monitors stock levels and movements daily.

Note: Finished goods are warehoused in a separate secured area that only the production manager and his assistant have access to.

1. Identifies and explains t (5) control weaknesses associated with the purchases and accounts payable outlined above.
2. Identifies and explains the account balance assertions for raw material inventory and accounts payable that are most impacted by control weaknesses.
3. Recommends and justifies a control improvement for each of the weaknesses identified in requirement one.

Answer 1

Below are the 5 Control weakness associated with the purchases and accounts payable:

1. To maintain and control product quality a limited number of trusted suppliers are used: Even if company wants to control product quality with limited number of supplier, there is possibility that limited supplier may give low quality product. Company should inspect the quality of products supplier by the limited supplier.

2. No Formal purchase order system is used: If there is no formal purchase order system, there will be no control on the purchase rate and quantity of goods. It may be possible that purchase cost of the goods will be increased.

Control Improvement: Company should implement proper purchase order system. Company should invite quotations from the different supplier. Company should select the quotation which is most beneficial to company.

This will ensure the Existence assertion of the goods ordered and accurate balance of purchase cost will be reflected.

3. The warehouse personnel are trusted, long term employees: Even if employees are trusted and long term, there is chances of change in the integrity of such employee which will results in loss of good from the warehouse.

Control Improvement: Company should assign proper segregation of duties for the work assigned to trusted employee

4. One of the warehousing staff ensures that all goods received, primarily raw materials, are in good order and signs the couriers’ delivery dockets in acknowledgment of materials received: There is chance that one warehousing staff may make a mistakes while doing work.

Control Improvement: There should be atleast 2 staffs for the said work. One staff will review the work done by other staff. This will reduce the chances of the errors and accuracy assertion will be meet.

5. Movement of in and out of the warehouse is not recorded: Because of this there will be chances of the theft of the goods from the warehouse. Even if production manager monitors stock level and movements daily, there is no control to check the production manager's work.

Control Improvement: Movement of in and out of the warehouse should be recorded and there should be maker and checker control over the same. The work of production manager should be monitor by the senior person. There should be proper segregation of duty of the work. Due to this control, Completeness assertion of the inventory will be ensured.