Internal Control Case1 True Aussie Co. is a manufacturing company located in Melbourne. The company has liberal policy among its staff. The company allows managers in the various departments to acquire supplies, furniture, equipment and other required items on a needs basis. The purchasing process begins when a requisition order is prepared by the department. The purchasing manager receives the requisition and inserts the name and number of a suitable vendor and the estimated cost of the item. The purchasing manager then asks the purchasing clerk to enter the requisition data into a state-of-the-art order and payment system. The purchase order and routes the purchase order as follows: copy 1 to the supplier, copy 2 to accounts payable, copy 3 to the store, and copy 4 to the requisitioning department.

When the ordered items arrive, the receiving clerk takes the copy of the purchase order and upon a visual inspection, signs over the delivered goods. The receiving clerk then accesses the order and payment system and generates a pre-numbered receiving report. The receiving clerk signs the receiving report and sends it, together with the items, to the requisitioning department.

The requisition department receives the items and counter signs the receiving report. The receiving report is routed to accounts payable. When the suppliers invoice arrives, the accounts payable clerk takes the purchase order and the receiving report and matches them with the invoice amount. At the end of each day, the clerk generates cheques to pay all vendors. The cheque is forwarded to the accounts payable manager to sign before being forwarded to the vendor.

Required: Identify all control weaknesses in the above case and recommend improvement for all weaknesses you identified.

Internal Control Case 2

Carefully study the scenario below and highlight all internal control strengths and weaknesses. Discuss how all internal control weaknesses can be addressed.

Sam Simpson is the accountant of a medium size company. Every weekday, his first task is to check whether any suppliers have transmitted their invoice electrically to him. If there is an invoice, Sam then checks for a corresponding purchase order. If he locates the purchase order, he then contacts the receiving department and checks whether the goods have arrived. If the goods have arrived, Sam then prepares a cheque and forwards to the supplier.

If Sam cannot locate the purchase order, he places the invoice in the pending invoice tray until he receives a reminder notice from the supplier. He then checks whether he had received the purchase order and repeats the process above of checking with the receiving department and then forwarding the cheque on to the supplier if the purchase order was found and the goods were received.

In the unlikely case that Sam cannot locate the purchase order after receiving the reminder notice from the supplier, he calls the purchasing department and requests another copy of the purchase order.