HA3032 Auditing - Tutorial Questions Assignment 1

Week 5 Question (10 marks)

Super-Savers Ltd is a major manufacturer of industrial machinery. When the stores department requires items to be purchased, they issue a three-part pre-numbered purchase requisition that needs to be approved by the stores’ manager. Copy 1 is sent to the purchasing department, copy 2 is sent to the accounts payable department and copy 3 is filed in the stores department. On receipt of an approved purchase requisition, the purchasing department issues a five-part pre-numbered purchase order. Copy 1 is sent to the supplier, copies 2 and 3 are forwarded to the receiving department, copy 4 is forwarded to the accounts payable department and copy 5 is filed in the purchasing department. When goods are received, the receiving department just stamps ‘order received’ on its two copies of the purchase order, which then forms its receiving record. One copy of the receiving record is filed in the receiving department and the other is forwarded to the accounts payable department. The accounts payable department checks that there is a purchase requisition, purchase order and receiving record for each supplier invoice and then approves it for payment. The accounts payable department prepares a pre-numbered payment voucher and forwards it, along with the supplier’s invoice, purchase requisition, purchase order and receiving record, to the financial accountant, who signs the payment voucher, completes the payment by bank transfer to the supplier and returns the supporting documents to the accounts payable department. At the end of the month, the assistant accountant undertakes a sequence check of all pre-numbered documents. The financial accountant receives the monthly bank statement, prepares a bank reconciliation and investigates any reconciling items.

Required:

1. Identify the weaknesses in Super-Savers’ internal control concerning the purchases and payments functions. (5 marks)
2. Explain why each is a weakness and provide a recommendation as to how to overcome the weakness. (5 marks)