Case study

Following is a description of Out of Control corporations' inventory purchases process for skateboard wheels. Identify the weaknesses in the controls, and suggest possible improvements.

When stock falls below 100 the computer automatically produces a purchase requisition for more stock from the supplier. If there is a special promotion coming up, John (the marketing manager) might put in an extra purchase requisition for promotional stock. The computer numbers the dockets in sequence and sends them to the purchasing department.

The purchasing department issues a purchase order with their standard supplier when they receive an authorized purchase requisition. John used to work in purchasing, and is good friends with Frank who now manages the purchasing department. John sometimes covers a shift for Frank when he has a day off.

When the order arrives at the warehouse receiving dock, the purchase order is compared to the goods received: The personnel check that the right types of wheels are included, the right number of wheels is included, and that they are undamaged. They then prepare a pre-numbered receiving report and forward it to accounting along with the suppliers invoice. Accounting then enters the amounts from the supplier invoices into the system.