CASE STUDY- INTERNAL CONTROL SYSTEM

Al Mundhir (Wood) manufactures various engineering parts. The site for the company is spread various locations in Sultanate of Oman.

Purchasing System:

When a development is in need of products, a request is forwarded to the Order Department. The clerk in the Ordering Department prepares a Purchase Order and contacts suppliers and checks out for the one who can supply the goods as early as possible. Purchase Order is forwarded to so selected customer, which are not sequentially numbered and only orders above RO. 5,000 require special authorization. Purchase Invoices are maintained by responsible purchase ledger clerk, who is an experienced team member, but does not apply any application controls over the input process. Every week he updates the purchases ledger from the purchase book, which is then posted manually to the purchase ledger.

Payment System: Al Mundhir maintains many current and savings accounts. As regards the current account reconciliation is done weekly, but for the savings account there is only reconciliation every two months. To have the maximum cash and bank balances, Al Mundhir has the policy of delaying payments to creditors. The Director of Finance is given the full responsibility of authorizing and processing payments as such he is provided with the total amount of payments, which are made through bank transfers.

Question:

1. Describe 5 problems in the Internal Control system Al Mandir (Wood) Manufacturer. (2.5 Marks)
2. Give recommendations to solve each problem (2.5 Marks)