Question

Examine the following case from Turner, Weickgenann, and Copeland, (2017):

Melcher Enterprises is a wholesaler that purchases consumer merchandise from many different suppliers. Melcher then sells this merchandise to many different retail chain stores. The following paragraphs describe the expenditures processes at Melcher:

Warehouse employees constantly monitor the level of each merchandise item by assessing how many remaining boxes of items are on warehouse shelves. When a warehouse worker sees the need to order a particular product, he fills out a postcard‐size order requisition form with the product name and item number. The number is Melcher's item number.

When the purchasing department receives a requisition from the warehouse employee, a buyer looks up the last purchase of that item and completes a PO to buy the item from that vendor. The manager of the purchasing department approves the PO before it is mailed to the vendor. One copy of the PO is mailed to the vendor, one copy is filed in the purchasing department, one copy is forwarded to the receiving department, and one copy is forwarded to the accounts payable department.

When the receiving department receives an order, [the receiving clerk] compares the packing slip with the PO. If no PO exists, the item is returned to the vendor. A receiving report is prepared for the number of items indicated on the packing slip. One copy of the receiving report is filed in the receiving department, one copy is forwarded to the purchasing department, and one copy is forwarded to the accounts payable department. Items received are then transported to the warehouse.

When the accounts payable department receives an invoice from the vendor, an employee in the accounts payable department compares the PO, receiving report, and invoice. If the three documents match correctly, a cash disbursement voucher is prepared. If it does not match, the employee contacts the vendor to try to reconcile the differences. The cash disbursement voucher is reviewed by the manager of the accounts payable department. If it appears correct to her, she writes a check and forwards the check to the treasurer to be signed and mailed to the vendor. (p. 362)

Perform analysis on the expenditure process that examines both strengths and weaknesses in the internal control procedures of Melcher Enterprises. In your analysis, include a document flowchart of the expenditure processes. Finally, describe any benefits that Melcher may receive by installing a newer IT system to process purchases, goods received, accounts payable, and checks. Be specific as to how IT systems could benefit each of the processes described.

Answer 1

Solution:

Weaknesses:

1. The warehouse employee fills the order requsition form when he feels there is a need to order a particular product. This is very discretionary in nature and warehouse employee can place requisition of product not required.

2. Purchase department while placing order, a buyer looks up the last purchase of that item and completes a purchase order to buy the item from that vendor. This is dependence on single vendor. Product may be purchased at higher price and also favorism to specific vendor cannot be ruled out.

3. Regular Stock reports must be monitored by purchase department and re-order level must be set. so whenever requisition comes from warehouse purchase department can have second check by stock levels that whether the product is actually required or not.

4. At least quotation shall be called from at least 3 different vendors while purchasinf products. The vendor shall be placed order to one vendoe after proper price & quality vendor analysis is done through inviting quotations.

Strengths:

1. Company will be able to buy product when required and the quantity which is actually required. The overbought situation will be avoided and resulting in avoiding unnecessary blocking of funds.

2. The company will be able to buy best quality product at best price by getting quotations from different vendors instead of buying from only single vendor.