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, it 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.

Required:

1. List any strengths and weaknesses in the internal control procedures of Melcher Enterprises.

2. Draw a document flowchart of the expenditure processes.

3. 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.