Enabling Assessment -Expenditure (Purchasing) Cycle

In 2019, D2 Manufacturing Company purchased over Php 10 million worth of office equipment under its so-called special ordering system, with individual orders ranging from Php 5,000 to Php 30,000.Special orders entail low volume items that have been included in an authorized user's budget.As part of their annual budgets, department heads request equipment and specify estimated costs.The budget, which limits the types and dollar amounts of office equipment a department head can requisition, is approved at the beginning of the year by the board of directors.A purchase requisition form for all approved equipment purchases must be prepared and forwarded to the purchasing department.The special ordering system functions as follows:

Purchasing

Upon receiving a purchase requisition, one of the five purchasing agents (buyers) verifies that the requester is indeed a department head.The buyer next selects the appropriate supplier by searching the various catalogs on file.The buyer then phones the supplier, requests a price quote, and places a verbal order.A prenumbered purchase order is processed, with the original sent to the supplier and copies to the department head, receiving, and accounts payable.One copy is files in the open requisition file.When the receiving department verbally informs the buyer that the item has been received, the purchase order is transferred from the open to the filled file.Once a month, the buyer reviews the unfilled file to follow up on open orders.

Receiving

The receiving department gets a copy of each purchase order.When equipment is received, that copy of the purchase order is stamped with the date and, if applicable, any differences between the quantity ordered and the quantity received are noted in red ink.The receiving clerk then forwards the stamped purchase order and equipment to the requisitioning department head and verbally notifies the purchasing department that the goods were received.

Accounts Payable

Upon receipt of a purchase order, the accounts payable clerk files it in the open purchase order file.When the vendor invoice is received, it is matched with the applicable purchase order, and a payable is created by debiting the requisitioning department's equipment account.Unpaid invoices are filed by due date.On the due date, a check is prepared and forwarded to the treasurer for signature.The invoice and purchase order are then filed by purchase order number in the paid invoice file.

Treasurer

Checks received daily from the accounts payable department are sorted into two groups:those over and those under Php 10,000.Checks for less than Php 10,000 are machine signed.The cashier maintains the check signature machine's key and signature plate and monitors its use.Both the cashier and the treasurer sign all checks over Php 10,000.

Required:

1. a context diagram, level 0 and child diagrams (if needed) of the Revenue Cycle.No narratives, however are required.
2. Analyze and identify the internal control weaknesses in the system.Recommend controls that should improve the weaknesses identified.Answer format should have 2 columns:Weakness, Recommendation.Explain in the Weakness column why the activity is a weakness.The recommendation should also be explained as to how it can rectify the corresponding weakness.