help me spot the control weaknesses.
About Kenzie Robotics Kenzie Robotics Inc. is a small start-up company that specializes in the construction and sale of toy robots made out of simple materials. The company sells these robots to children of all ages with the goal to inspire kids to generate ideas for building their own robots. The introduction of MARCO, the company's first robot model, has been more successful than anticipated. However, as the number of sales continues to increase Kenzie is experiencing a significant number of customer complaints related to breaking parts with minimal or no use and to robots being damaged upon delivery. During production, the company has identified that MARCO regularly requires fixes before it can leave the factory. Quality checks have routinely revealed defects in more than 20% of the robots inspected. Initially, the company had attributed the high rate of defects to its unusually rigorous quality control process designed to flag and correct the tiniest imperfections. However, with the introduction of its new and improved robot, MARCO 3.0. management is concerned that the number of customer complaints could increase if the company is not able to figure out what are the production process imperfections causing the problems. Activities It is in this context that management has requested its accounting interns to make an assessment of the company's conversion cycle with the goal to gain first-hand understanding of its weaknesses and strengths. In particular, management would like the team of accounting interns to Conversion cycle at Kenzie Robotics At Kenzie Robotics, the production process is controlled using manual operations and paper documents. The production starts when personnel in the production, planning, and control (PPC) function evaluates production needs and inventory availability comparing sales orders (received from the sales department) requirements to bill of materials (received from engineering) and against inventory status reports (received from inventory control). Production Scheduling After the PPC function has assessed production needs and inventory availability, procuuction is scheduled and the control documents are prepared. Based on the information provided in the sales order and route sheet (received from engineering), the PPC completes two copies of the work order. In addition, using information contained in the sales order, the bill of materials, and the inventory status report, the PPC completes four copies of the materials requisition form according to what is needed in each work center. One copy of the work order is sent to work center 1 to authorize the the start of the manufacturing of robots. The second copy of the work order is kept in the PPC function where it is constantly updated to track the progress of production. Each work center (14) receives one copy of the materials requisition form. Production Process The production process takes place sequentially in work center 1 (building activities), followed by activities in work center 2 (foil wrapping activities), work center 3 (robot assembly activities), and work center 4 (branding and decoration activities). In each work center, production activities start when raw materials are retrieved from the storeroom in exchange for the materials requisitions. Once materials have been issued to a work center, personnel in the storeom forward the materials requisition form to cost accounting. Work centers record their labor time in the daily time and job tickets according to the actual amount of time they spend in their activities. When a work center has finished performing its activities, it prepares a move ticket to authorize the transfer of finished work to the next work center (or finished robots (FR) warehouse if production is complete). Personnel in the "transfer from" work center must also update the work order. Then, the finished work is transferred to the next work center (or FR warehouse) and the completed move ticket and daily time and job ticket are forwarded to cost accounting. Posting Transactions to Subsidiary ledgers Materials requisition forms received from the storeroom, move tickets, and daily time and job tickets received from the work centers are used in the cost accounting department to update the Robots-in-Process inventory subsidiary accounts (Robots Under Construction (RUC), Robots in Foil Wrapping, Robots in Assembly, and Robots in Branding \& Decoration). When done, the materials requisition is passed to inventory control to update the raw materials subsidiary ledger. The materials requisition is kept in inventory control for future reference. When the move ticket is received from the last work center, it is used to update the Robots Transferred to FR warehouse. Periodically, cost accounting sends each move ticket and daily time and job ticket to the PPC. The PPC updates their copy of the open work order and files both documents for future reference. When the last move ticket is received, the PPC closes the work order and the finished robot is assumed to have been sent to the Finished Robots Warehouse. Posting Transactions to the General Ledger Periodically cost accounting uses a journal voucher to inform the general ledger function to post the journal entry related to the work done in the work centers to the corresponding control accounts. When the work center 4 has finished performing its activities, the work order used by the work centers is closed and transferred to cost accounting. The journal voucher created in cost accounting indicates that the work-in-process must be transferred to finished goods inventory. The general ledger function posts the values to the corresponding accounts and file the voucher for future reference. Activity 3: Required Steps \& Deliverable 1. Identify the internal control weaknesses present in the Kenzie Robotics conversion cycle. These must be observable in the narrative or specifically identified during the execution of activity 2. This means that control weaknesses implied by their omission in the description of the process are not valid. 2. Identify the potential threats (risk) to which the system is exposed as a result of the control weaknesses that you have identified. 3. Recommend mitigating CONTROL ACTIVITIES (as described in the COSO Internal Control-Integrated Framework) that can be used to prevent, or detect and correct the control weaknesses that you have identified. Note that you are NOT allowed to hire new employees or implement a new accounting system. You must propose solutions using the resources already available to Kenzie Robotics. In real life, this is analogous to being constrained by weighing the benefits over the costs. As with any communications strategy, it is a good idea to "tell your reader what you are going to tell them," "tell them," and then "tell them what you told them." To do this effectively in a one or two pages memo, you must be professional, direct, and succinct. The following structure will help you accomplish the assignment objectives in this memo: I. The Executive Summary is very short and immediately states your primary recommendations. It should contain a sentence of the form "I/We recommend that Company X take Action Y " (this should be the first sentence in most memos). Action Y should be as specific as possible. The other one or two sentences should summarize (1) the benefits, including financial effects, of the recommendation and (2) the specific details of the recommendation. Do not refer to Exhibits here (wait until section II or III). II. The Background section contains a two-three sentence description of the most important elements of the business problem at hand. Remember that your audience is aware of what the company does and its general competitive environment and does not need that information repeated. State the problem; that is, the reason for the memo (e.g. lack of proper controls, COSO, etc.). If applicable, also state the baseline analysis you have conducted and provide reference to an exhibit or exhibits that educate the reader on the analysis. Avoid making statements of judgment or recommendations here. III. The Findings and Recommendations section specifies your recommendations (mitigating controls) and their benefits and costs. Give each major recommendation its own row in the table and discuss the logical connection between the control weakness, what could go wrong if left unchecked, and the action you recommend. Provide very specific evidence from the case and your analysis, and reference to supporting exhibits. Note that, for each internal control weakness that you identify, you must list one internal control (and corresponding necessary process change, if any) that directly addresses the weakness. Each mitigating control should be appropriately described indicating how your recommendation helps to mitigate the likelihood or impact of the identified threat. Note that your suggestions must be viable not only from an efficiency point of view but also from a practical view. For example, assume that you identify that a threat faced by Kenzie Robotics (KR) is the loss of key strategic vendors due to the length of time KR takes to pay for goods/services purchased. Also, assume that you identify that the problem is caused by the extensive time taken by personnel to reconcile receiving reports with purchase orders and vendor invoices. Then, you assess that this reconciliation has become an internal control weakness (the cost of the reconciliation seems to outweigh the benefits). As a result, you suggest speeding up payment to vendors by only matching vendor invoices to receiving reports. Although under certain circumstances this may be a workable solution, without further detail it looks like your suggestion may cause KR to pay for products never received or products received that were never ordered. For your suggestion to be viable, you must propose an additional control(s) that prevents the overpayment at the same time that addresses the original threat: due to the length of time KR takes to pay for goods/services purchased. A suggestion/recommendation that is not viable is not a well-defined control. NOTE: SECTION III SHOULD BE THE LONGEST PART OF EACH MEMO. The Conclusion section restates the benefits of your primary recommendation(s). Your goal is to have the reader's last image be of the reasons to approve your recommendations. Do not introduce new information in the Conclusion
