Darwin Playtime Pty Ltd (DPPL) is a toy manufacturer. DPPL hasfactories across the country and its customer base includesretailers, as well as individuals, to whom direct sales are madethrough their website. You are an audit senior at Raul David &Associates and you are currently reviewing documentation of DPPL’sinternal controls in preparation for the interim audit.

DPPL’s website allows individuals to order goods directly andfull payment is taken in advance. Currently the website is notintegrated into the inventory system and inventory levels are notchecked at the time when orders are placed.

Goods are delivered via local couriers; however, the couriers donot always record customer signatures as proof that the customerhas received the goods. Over the past year, there have beencustomer complaints about the delay between sales orders andreceipt of goods. DPPL has investigated these complaints and foundthat, in each case, the sales order had been entered into the salessystem correctly, but was not forwarded to the despatch departmentfor fulfilling.

DPPL’s retail customers undergo credit checks prior to beingaccepted and credit limits are set accordingly by sales ledgerclerks. Neither the sales area managers nor the sales director areinvolved with this process. These customers place their ordersthrough one of the sales team, who decides on sales discountlevels.

Raw materials are purchased from a wide range of suppliers. As aresult of staff changes in the purchase ledger department, supplierstatement reconciliations are no longer performed. Additionally,changes to existing supplier details or inclusion of new supplierdetails in the purchase ledger master file can be undertaken bypurchase ledger clerks, as well as supervisors.

In the past six months, DPPL has changed part of itsmanufacturing process and as a result some new equipment has beenpurchased. However, there are now considerable levels of plant andequipment that are now surplus to requirement. Purchaserequisitions for all new equipment have been authorised byproduction supervisors and little has been done to reduce thesurplus of old equipment.

REQUIRED:

a) Identify five (5) deficiencies in the internal controls ofDPPL. Explain how a business risk arises from each deficiency.