A hotel business is owned by Ellagoda and his daughter Nora. It employs an accounts executive and administrative executive.

The hotel has started the construction of a new room extension while carrying out routine repairs and maintenance. The work is being done by a group of workers in the area. It follows a simple procurement process to purchase materials required for these purposes.

I.When the head worker verbally communicates the need for materials the accounts executive prepares a payment voucher and a cash cheque for the estimated amount.

II.Once the payment voucher and cash cheque are approved by Nora, the accounts executive withdraws money from the bank and gives it to the head worker to buy the required items. The suppliers in the area do not provide credit.

III.Given that all the items are construction-related materials, they are assigned a single code and accounted for by the following double entry through a journal voucher (JV) when the cash is given to the head worker.

Dr: Construction expenses (P&L)

Cr: Cash at bank

IV.As materials are supplied by known suppliers, they give a cash receipt only when materials are purchased from them. A supplier invoice is usually not given.

V.The payment vouchers are filed with the JV in a separate file when the head worker hands over the supplier's cash receipt. JVs are prepared and filed by the administrative executive.

The accounts executive has proposed to implement a suitable IT system for the accounting function and is considering the relevant IT controls.

Task 01

Critically analyze the situation by outlining six (06) improvements to internal controls in the existing procedure of procuring materials for the construction and repair of the hotel assuming the system and staff are adequate.