As the auditor of Tai Fat Manufacturing Bhd, you have been assigned to evaluate the effectiveness of the internal control structure relating to the purchases and payments system, and to make an assessment of the control risk. Although the company has expanded over the years with more than 100 active vendor accounts currently in the creditors' ledger, it continues to rely, on a manual system to process all purchases transactions.

During the review phase of your study, you observed the following procedures that have been employed by the company in handling purchases and cash payments.

After the reper prendere pare har en reguisition when store bretory is forwarded the recorder paire After the requisition form has been signed by the storekeepernicis forwarded to the purchasing department. On the basis of the information given in the requisition form, a purchase order is prepared by the purchasing clerk and then mailed to a vendor. The requisition form is filed by date. Upon receipt of goods by the storekeeper, a receiving report is prepared in duplicate. The first copy is sent to the accounts payable department and the second copy is filed in numerical sequence. The vendor invoice is received directly by the accounts payable department, where the creditor's ledger clerk matches the

details on the receiving report with those on the invoice, and also verifies all calculations on the invoice Entries are then made in the purchases journal and postings made to the accounts payable ledger. The receiving report is filed numerically and the invoices by date

Cheques are prepared each month for each vendor by the accounts payable department. Both the cheques and payables subsidiary ledger are submitted to the general manager for review. After checking that the cheques agree with the accounts payable balances, the general manager signs them and returns them to the accounts payable department for mailing to the vendors. The accounts payable department also prepares a monthly summary of cheques issued, which is then used for updating the accounts payable ledger accounts.

For goods to be returned to the vendor, the storekeeper prepares a goods returned report in duplicate.

A copy is sent to the vendor and the duplicate copy is filed numerically When the accounts payable department receives the credit note directly from a vendor, the accounts payable ledger and purchases journal are updated, and the credit note is filed by vendor name in alphabetical order.

Required:

(a) Identify the major internal control weaknesses inherent in the present system,

(b) What specific control procedures would you expect to find if Tai Fat Manufacturing Bhd's intemal control structure over purchases and cash payments were effective?