Internal ControlCase1
True Aussie Co. is a manufacturing company located in Melbourne.The company has liberal policy among its staff. The company allowsmanagers in the various departments to acquire supplies, furniture,equipment and other required items on a needs basis. The purchasingprocess begins when a requisition order is prepared by thedepartment. The purchasing manager receives the requisition andinserts the name and number of a suitable vendor and the estimatedcost of the item. The purchasing manager then asks the purchasingclerk to enter the requisition data into a state-of-the-art orderand payment system. The purchase order and routes the purchaseorder as follows: copy 1 to the supplier, copy 2 to accountspayable, copy 3 to the store, and copy 4 to the requisitioningdepartment.

When the ordered itemsarrive, the receiving clerk takes the copy of the purchase orderand upon a visual inspection, signs over the delivered goods. Thereceiving clerk then accesses the order and payment system andgenerates a pre-numbered receiving report. The receiving clerksigns the receiving report and sends it, together with the items,to the requisitioning department.

The requisitiondepartment receives the items and counter signs the receivingreport. The receiving report is routed to accounts payable. Whenthe supplier’s invoice arrives, the accounts payable clerk takesthe purchase order and the receiving report and matches them withthe invoice amount. At the end of each day, the clerk generatescheques to pay all vendors. The cheque is forwarded to the accountspayable manager to sign before being forwarded to the vendor.

Required: Identify all control weaknesses in the above case andrecommend improvement for all weaknesses you identified.

Internal Control Case2

Carefully study thescenario below and highlight all internal control strengths andweaknesses.  Discuss how all internal control weaknessescan be addressed.

Sam Simpson is theaccountant of a medium size company.  Every weekday, hisfirst task is to check whether any suppliers have transmitted theirinvoice electrically to him.  If there is an invoice, Samthen checks for a corresponding purchase order.  If helocates the purchase order, he then contacts the receivingdepartment and checks whether the goods have arrived.  Ifthe goods have arrived, Sam then prepares a cheque and forwards tothe supplier.

If Sam cannot locatethe purchase order, he places the invoice in the ‘pending invoice’tray until he receives a reminder notice from thesupplier.  He then checks whether he had received thepurchase order and repeats the process above of checking with thereceiving department and then forwarding the cheque on to thesupplier if the purchase order was found and the goods werereceived.  

In the unlikely casethat Sam cannot locate the purchase order after receiving thereminder notice from the supplier, he calls the purchasingdepartment and requests another copy of the purchase order.