Question

Using internal controls to prevent errors. The following misstatements occurred in the records of MW Company. For each misstatement, suggest a control to prevent it from happening. 1. A bill from a supplier was paid for goods that had not been ordered. 2. A supplier's bill for 50 boxes of materials was paid even though only 40 boxes were received. 3. Expensive product components were stolen by an employee from a loading dock area after hours. 4. No bill was sent to a customer for a shipment because the shipping document was lost after the shipment was made.

Answer 1

Case 1:

Before receiving the goods the internal members of the should cross check the purchase requisition note (PRN). If PRN matches with the goods received then the company should initiate payment for that receipt of goods.

Case 2:

The company should always check PRN, goods receipt note (GRN) and goods received (GR) to initiate the payment. If all three matches then only the company should make payment. If there is a short of goods then the payment should e made only for the goods which are actually received by the company.

Case 3:

There should be strong security men at the loading area to prevent components from theft. And it wold be better if the company appoints a person as a manager and give him full rights to ensure that there is no happening of theft.

Case 4:

It should be better to maintain documents digitally. It means to go online for everything instead of physical form of paper. The shipping document can be directly mailed to the customer without any personal intervention. And the customer can directly ask the vendor if he has any doubt regarding the shipment.