Question

b) Supreme Ventures is a manufacturer of quality home accessories and a client of your audit firm. You are carrying out the audit of the purchases system of Supreme Ventures.

The company has revenue of Ghc 12.5 million, and all the shares are owned by Mr. Ado, and Mr. Tekpe, who are non-executive directors and are not involved in the day-to-day running of the company.

Kofi Badu is the accounts clerk who maintains all the accounting records and prepares the annual financial statements.

The company uses a standard computerised accounting package. You have determined that the purchases system operates as follows:

• When materials are required for production, the production manager sends a handwritten note to the buying manager. For orders of other items, the department manager or managing director sends a handwritten note to the buying manager. The buying manager finds a suitable supplier and raises a purchase order. The purchase orders are signed by the managing director. Purchase orders are not issued for all goods and services received by the company.

• Materials for production are received by the Goods Received Department, who issue a goods received note (GRN), and sends a copy to the accounts clerk. There is no system for recording receipt of other goods and services.

• The accounts clerk receives the purchase invoice and matches it with goods received notes and purchase order (if available). The managing director authorises the invoice for posting to the purchase ledger.

• The accounts clerk analyses the invoice into relevant nominal ledger accounts codes and then posts it.

• At the end of each month, the accounts clerk prepares a list of payables to be paid. This is approved by the managing director.

• The accounts clerk prepares the cheques and remittances and posts the cheques to the purchase ledger and cashbook.

• The managing director signs the cheques and accounts clerk sends the cheques and remittances to the payables.

Mr. Ado, and Mr. Tekpe are aware that there may be weaknesses in the above system and have asked for advice.

You are required to:

i. Explain five (5) control deficiencies in Supreme Ventures's purchases system and suggest improvements to overcome the deficiencies.

Answer 1

1.When ever supreme ventures required materials production manager send a handwritten note to buying manager it is one of loophole because in handwritten there is a possibility to ask for materials more than required or materials unnecessary to them

Control

Material reqution note should me auto generated from system.

2.Given that buying manager find suitable suplier and raise purchase oder, there is possible to purchase materials at higher cost or enen from family, friends at high cost

Control

Buying manger first ask for quotations from suppliers and director need to approve rasing purchase oder from relevant supplier

3.No system for recording receipt of other goods and services

Control

Like GRN rasied by goods receipt department there must a control to raise proper GRN for other goods and services

4.accountant clerk match manually GRN with purchase oder if avaliable

Control

There must be system to auto generate purchase oder when ever GRN generated by goods received department it should be automatically mached with purchase oder through system

5.Here Acountant clerk dealing with major works there is a possibility to miss use his power

Control

Diversion of work should be used