AUDIT OF INVENTORY

You have been engaged by the management of Maine, Inc. to review its internal controls over the

purchase, receipt, storage, and issue of raw materials. You have prepared the following comments

that describe Maine's procedures:

1. Raw materials, which consist mainly of high-cost electronic components, are kept in a locked

storeroom. Storeroom personnel include a supervisor and four clerks. All are well-trained, competent,

and adequately bonded. Raw materials are removed from the storeroom only on written or oral

authorization of one of the production managers.

2. There are no perpetual inventory records; therefore, the storeroom clerks do not keep records of

goods received or issued. To compensate for the lack of perpetual records, inventory is counted

monthly by the storeroom clerks, who are well-supervised. Appropriate procedures are followed in

making the inventory count.

3. After the physical count, the storeroom supervisor matches quantities counted against a

predetermined reorder level. If the count for a given part is below the reorder level, the supervisor

enters the part number on a materials requisition list and sends this list to the accounts payable clerk.

The accounts payable clerk prepares a purchase order for a predetermined reorder quantity for each

part and mails the purchase order to the vendor from whom the part was last purchased.

4. When ordered materials arrive at Maine, they are received by the storeroom clerks. The clerks

count the merchandise and agree the counts to the shipper's bill of lading. All vendors' bills of lading

are initialed, dated, and filed in the storeroom to serve as receiving reports.

Requirement:

In a meeting with Maine's CEO and other top officials, you are tasked to describe the deficiencies in

internal control and recommend improvements in Maine's procedures for the purchase, receipt,

storage, and issue of raw materials. You are required to organize your presentation as follows:

Deficiency: ___

Recommended Improvement/s: ____