Assessment of internal controls around purchases and payments cycle at Evans Ltd.

Jack has completed his assessment of internal controls around purchases payments to suppliers at Evans Ltd, a small manufacturer of custom outdoor timber furniture. Jack has identified the following processes in relation to purchases and payments:

Evans has the following staff: a warehouse manager; four machinery operators (who do the actual manufacturing of the outdoor furniture); an accounts payable clerk; an accounts receivable clerk; a banking clerk; an administrative assistant; and five directors, one of whom runs the business as a whole on a day to day basis.

All operations occur at their location in Bathurst, NSW.

When stores of raw materials are visibly running low as assessed by the machinery operators, they tell the warehouse manager and he then initiates the order of goods. The process for ordering goods begins with the warehouse manager making phone calls to a range of approved suppliers to obtain quotes. Once a list of quotes has been obtained, the order will then be lodged via the phone, with confirmations of the order being received by email. The confirmation email is kept by the warehouse manager.

Once the confirmation email is received, the warehouse manager completes a purchase order in duplicate. One copy is kept at the warehouse, while the other is sent to the accounts payable clerk and is filed by date.

When the goods arrive at the warehouse, the warehouse manager checks the goods received match the delivery note which comes attached to the goods and signs the delivery note. There are two copies of the delivery note one is kept by the delivery company, the other is kept by the warehouse manager.

The warehouse manager photocopies the delivery note and forwards the copy to the accounts payable clerk, who performs the journal entry to the creditors ledger for the amount on the delivery note. The delivery note is stamped/signed as entered' and filed by supplier.

Question

The strengths and weaknesses around the internal control function and the recommended audit strategy for purchases at Evans Ltd.