Rapidrise Ltd is a firm of plumbers’ and electricians’ merchants which has expanded very rapidly to a turnover of some £3 million in five years. There are three founder director/shareholders and some 20 staff + six clerical staff including Ted who is a part  qualified accountant. The system for ordering and paying for incoming goods is:

Each morning Ted visits the warehouse and the foreman and his deputy tell him precisely what to order to replace existing inventories and to obtain new lines. New lines are usually suggested by the directors. Ted telephones through the orders to the regular suppliers. Some suppliers require a written order and for them he writes out an order from a duplicate pad which is not sequentially numbered. On arrival of the goods, the goods are checked by the foreman or his deputy and the delivery note marked ‘OK’ and passed to Ted. Ted places the delivery notes in a file. When the invoices arrive they are placed in a box. Approximately once a week, Jean, a clerk, compares the invoices with the delivery notes, settles queries and staples the invoices to the matching delivery notes. She then enters the details of the invoices (supplier, net, gross, VAT) into a computer spreadsheet file on a PC used only for this purpose. At the end of each month the file is printed out and a listing obtained of the outstanding invoices in supplier name order. When the monthly statements are received, Jean compares them with the printout and settles any queries over the phone with the supplier or with the foreman. She then passes the statements to Ted who decides which items are to be paid (the company has cash flow difficulties caused by its rapid expansion). He marks the items to be paid and gives them all back to Jean. Jean makes out cheques for these items and sends them to Ted. He signs the cheques (only his signature is required) and Jean hands them to Mary who sends out the post.

Jean enters the cheques in the invoice spreadsheet. The computer system also:

• prints out lists of invoices (and credit notes);

• prints out lists of cheques drawn;

• updates the cash book file which is used by Ted to control the bank overdraft;

• matches cheques with invoice items and eliminates them where possible.

Jean journalizes entries to match and eliminate invoices where several are settled with one cheque. Jean has no other duties apart from some typing and the keeping of the petty cash. There are no inventory control systems and the warehouse is open during the day to all staff and to customers. Good security operates at night and at weekends.

Required:

(a) Flow chart this system.

(b) Identify and list the weaknesses in this system.

(c) List the possible consequences of these weaknesses. These should include possible frauds as well as errors.

(d) Suggest a better system.