2.4 The operational audit of the purchasing cycle has already been conducted. The Book Worm's organisational chart for the purchasing department is: BOOKWORM Extract: Purchasing Department Organisation Chart MANAGING DIRECTOR LINDA TRINH SUPPLY MANAGER WARREN PAGE PURCHASING OFFICER PURCHASING OFFICER MARK SHRESTHA STEFAN CHAPTER ADMINISTRATIVE SUPPORT CHRIS LEE ADMINISTRATIVE ADMINISTRAINE FREDA NOVEL TOM FICTION The internal control procedures within the Purchasing Department require: All Purchase Requisitions must be approved by the operating manager whose department is allocated the cost of the items purchased An approved Purchase Requisition must support all Purchase Orders. All Purchase Orders must authorised by the Purchasing Officer. The ledger accounts charged in the Purchase Order must checked for accuracy by an authorised member of the accounting department. Purchase Orders must be raised for all purchases of inventory items, administration and other expenses. A regular report must be prepared showing unaccounted or missing Purchase Orders. All Purchase Orders outstanding for more than two months must be investigated.| The senior auditor has provided you with the Purchasing Department Operational Audit Plan, which includes the audit procedures. This is available in the Assessment Resources folder. During the operational audit of the Purchasing depariment, 800 purchase orders were raviewed and the following weaknesses were found: = 51 orders were not signed by a purchasing officer. = 15 were not authorised by the correct purchasing officer for that product. = 12 purchases of goods or services were made with verbal requests from store managers and purchase orders were not raised for them. = 35 orders have been outstanding for more than three months. = 8 additional orders have been raised duplicating orders for goods included in those orders outstanding for more than three months. = 5 orders were for goods for the personal use of staff. Once this was discovered the staff were made to repay Book Worm for the purchases. In addition to the above, the organisation structure of the Purchasing department was reviewed and found to be inefiective in being able to comply with the basic principles of internal control. Using the Purchasing Internal Audit Report Template located in the Assessment Resources folder, complete an internal audit report outlining: = the four objectives of the internal audit = a variance analysis of the internal operations performance indicators = four recommendations that will prevent or detect future instances of the errors found. The above items are highlighted in yellow in the Purchasing Internal Audit Report Template for you to complete. You must upload this document with your completed assessment workbook. Internal Audit Report To: Purchasing Manager Cc: Managing Director, Supply Manager, External Auditors Operational Audit of Purchasing Executive Summary A number of basic breaches of the purchasing procedures were found during the review. Recommendations to prevent further occurrences include the review of all orders by the Administrative Support staff. To make this activity effective the organisational structure of the purchasing department needs to be meodified by separating the Administrative Support from operating staff. Introduction We have recently completed an audit review of the central Purchasing Department during the month of August 2020 and have discovered several areas of concern. These matters have been discussed with the Purchasing Manager and her explanations have been included in this report. Objectives and Scope The general objectives of this audit were specifically agreed to in the recent meeting between the Internal Auditor, Purchasing Manager and Financial Controller and representative of the External Auditors. These objectives were as follows: 1 2 3. 4, Findings and Recommendations During the review, a number of variations to established procedures were discovered. All of them have been brought to the attention of the appropriate member of the purchasing department. All findings are stated below as well as our specific recommendations. It is agreed that implementation of the improvements and corrections will require additional resources. It will be a management decision to determine the priority of each issue and consequently the order of the implementation. Specific Findings The following variation to agreed practices as laid down in the purchasing sections of the Corporate Procedures Manual were found after 800 purchase orders were reviewed: (2) 51 orders were not signed by a purchasing officer (b} 15 were not authorised by the correct purchasing officer for that product. (c) 12 purchases of goods or services were made with verbal requests from store managers and purchase orders were not raised for them. (d) 35 orders have been outstanding for more than three months (e] & additional orders have been raised duplicating orders for goods included in those orders outstanding for more than three months. (f} 5 orders were for goods for the personal use of staff but consequently and correctly charged to them. Variance Analysis Performance Indicator Target Actual Variance (%) % of orders signed off by a purchasing officer 100% % of orders signed off by correct purchasing officer 100% % of purchase orders raised correctly 100% % of orders outstanding for less than 3 months 100% % of duplicate orders 0% % of orders raised for business use 100% Specific Recommendations The following four recommendations are made: s 7 Summary The internal control weaknesses that were found were mainly technical but still worrying because of their frequency. It is our belief that the changes to the organisation structure and job specifications will provide the necessary segregation and independent checks. These changes will ensure management objectives are met in accordance with the basic tenets of internal control