In: Accounting
Tralor Corporation manufactures and sells several different lines of small electric components . Its Internal Audit Department completed an audit of the expenditure cycle for the company . Part of the audit involved a review of the internal accounting controls for payables , including the controls over the authorization of transactions , accounting for transactions , and the protection of assets . The auditors noted the following items.
1. Routine purchases are initiated by inventory control notifying the purchasing department of the need to buy goods . The purchasing department fills out a prenumbered purchase order and gets it approved by the purchasing manager . The original of the five -part purchase order goes to the vendor , a copy is retained in purchasing , a copy is sent to the user department , a copy is sent to receiving to be used as a receiving report , and a copy is sent to accounts payable in the accounting department .
2. For efficiency and effectiveness , purchases of specialized goods and services are negotiated directly between the user department and the vendor . Company procedures require that the user department and the purchasing department approve invoices for any specialized goods and services before making payment .
3. Accounts payable maintains a list of employees who have purchase order approval authority . The list was last updated 2 years ago and is seldom used by accounts payable clerks.
4. All vendor invoices are recorded in an invoice register . The register indicates the receipt date , any invoices dealing with special orders , when those special orders are sent to the requesting department for approval , and when they are returned . Review of the register indicated that there were seven open invoices for special purchases , which had been forwarded to operating departments for approval over 30 days ago and had not yet been returned.
5. Prior to making entries in accounting records, the accounts payable clerk checks the mathematical accuracy of the transaction, makes sure that all trans actions are properly documented the purchase order matches the signed receiving report and the vendor's invoice )and obtains any departmental approval of invoices for special purchases .
6. All approved invoices are filed alphabetically . You sent a few seconds ago 6 All approved invoices are filed alphabetically. Invoices are paid on the 5th and 20th of each month , and all cash discounts are taken regardless of the terms.
7. The treasurer signs the checks and cancels the supporting documents after they are paid. An original document is required for a payment to be processed .
8. Prenumbered blank checks are kept in a locked safe accessible only to the cash disbursements department . Other documents and records maintained by the accounts payable section are readily accessible to all persons assigned to the section and to others in the accounting function .
Required: Review the eight items listed and decide whether they represent an internal control strength or weakness. a. For each internal control strength identified , explain how the described proce dure helps achieve good authorization , accounting , or asset protection control . b. For each internal control weakness identified , explain why it is a weakness and recommend a way to correct the weakness . ( CMA adapted )
(please a printed answer not a picture) .
The best short answers .thanks
Internal Control | ||||||||||
1) Strength | ||||||||||
Authorisation | Purchase order is made as per the autorisation of purchase department on the basis of request of inventory department so there is proper authorisation of goods being order | |||||||||
Weakness | Unusual transaction may not be controlled due to lack of Prioritisation of request made by Inventory department whether there is actual urgency of inventory or not | |||||||||
How to overcome weakness | When Purchase department recieves requisition for purchase of inventory, firsly It has to prioritise the request and then order the goods, so goods are not unnecessarily ordered | |||||||||
2) Weakness | ||||||||||
Abuse of authority | There may be chances that User department may unnecssarily order the specialised item and chances of fake invoices also there | |||||||||
Collusion of Employees | ||||||||||
How to overcome weakness | In order to overcome collusion among employees,proper segregation of duties and proper fixation of authority and responsibility | |||||||||
3) Weakness | ||||||||||
Change in conditions | Account payable department maintain a list of employees which was last updated 2 years ago. There may be situation that person whose name mentioned on the list has no authority to order goods now | |||||||||
How to overcome weakness | List of employees should be updated time to time | |||||||||
4) Strength | Doumentation | Proper register is maintained for safe recording of assets so that no one can access unauthorised manner | ||||||||
4) Weakness | ||||||||||
No fixation of authority and responsibility with respect to these open invoices | ||||||||||
How to overcome weakness | Proper monitoring of open invoices by responsible person and also ensure proper reporting to responsible person | |||||||||
5)Strenghth | ||||||||||
Verification, Completeness and accuracy | 3 way check by accounting department by matching with purchase order, receiving report and vendor invoices | |||||||||
Also checking of authorisation for special purchases made and completeness and accounting of all documents | ||||||||||
6)Strength | Prevention,detection & correction by alpahbately arranging of invoices received | |||||||||
Also increase the credit worthiness of the entity by making timely payment and chances of fraud easily detected | ||||||||||
7) Strength | No duplication of payment by cancelling the supporting document which has ben paid | |||||||||
8) Strength | Safeguarding of assets from unauthorised access,use or disposition by keeping blank checks are kept in locked safe accessible only to cash disbursemnt department | |||||||||
Proper maintainnace of record which result in reduction of cost by easily accessible |