Question

Required: Describe the purpose of each internal control procedure.

a. Prenumbering and periodically accounting for all purchase orders.

b. Receiving department employees do not have access to the quantities ordered on purchase orders

c. Requiring two signatures on checks for large amounts

d. Maintaining an approved supplier list and checking that all purchase orders are issued only to suppliers on that list

e. Cancellation of the voucher package by the cashier after signing the check

f. Requiring that a copy of the receiving report be routed through the inventory stores department prior to going to accounts payable.

g. Requiring receiving department employees to always verify the existence of a valid purchase order before accepting delivery

Answer 1

1. Prenumbering and periodically accounting for all purchase orders.

Ans:- The Purchase Orders (PO) when Prenumbred, it assures the proper accounting for all the PO issued by any given company. In many establishments, it has been seen that the Purchase Orders are issued by different departments for different materials. The prenumbering ensures that all the POs issued by the company as a whole are accounted for.

Moreover, the PO should also be accounted for periodically so as to ensure that all the POs have been fulfilled by the suppliers and that the terms of PO are complied with. Also, by the regular accounting of PO we can keep track of the POs that have not been fulfilled.

2. Receiving department employees do not have access to the quantities ordered on purchase orders

Ans:- There should be a Stores department to receive the consignment as per the Purchase Order and then to distribute the materials to the receiving department. It can be anticipate, that when the receiving department employees have access to the total material quantity, they may tend to use the material as per the total available resources. Not providing the complete access may encourage the receiving department employees to use the materials in a more economical manner.

3. Requiring two signatures on checks for large amounts

Ans:- When the materials received in large amounts, two personals are responsible to check the material before taking the delivery. This is to make sure that the whole material has been received as per the terms of the PO. Also, by assigning two people, we can just make sure that the material has been double checked and there is less room for error left in the receipt of the said material.

4. Maintaining an approved supplier list and checking that all purchase orders are issued only to suppliers on that list

Ans:- Maintaining an approved supplier list ensures a close monitoring on the quality of materials being ordered. The approved suppliers are well aware of the type of work and materials requested by our organization. It also keeps a check on un-necessary POs placed by any departments and keeps a check on fraudulent POs to be placed by any given department. In addition to this, we can anytime request the approved supplier to produce the transaction history with our organization and helps in the reconciliation of the accounts. It also helps the top management monitor the day-to-day working of the department.   

5. Cancellation of the voucher package by the cashier after signing the check

Ans:- This ensures that the Vouchers are not to be reused. This also ensures that the Voucher be applied only when the cheque is actually accounted for with reference to the said Voucher. Also the cancellation should be done only by the Cashier and not by any other official so as to keep the proper accountability for all the Vouchers used/applied.

6. Requiring that a copy of the receiving report be routed through the inventory stores department prior to going to accounts payable.

Ans:- The receiving report must be routed through the Inventory stores to ensure that the said material was actually physically received by the organization before finalizing the payment. The Stores department can also produce extra remarks as to any defects in the Material received or the material received not as per the standards of the PO. This way, the Accounts Payable department can make the required adjustments and/or deductions as per the terms of the PO.

7. Requiring receiving department employees to always verify the existence of a valid purchase order before accepting delivery

Ans:- this is to ensure that the materials being unloaded and stocked in our stores are only for those we have issued a Purchase Order. The existence of PO must be ensured so that the receiving department can also check that the basic terms of the PO are complied with by the supplier. This will help avoiding unnecessary storage costs for the materials that we may not have ordered.