Question
Jones Ltd is a manufacturer of chocolates. A computerised inventory system is maintained. When raw material inventories fall below a pre-determined level, the computerised system
Jones Ltd is a manufacturer of chocolates. A computerised inventory system is maintained. When raw material inventories fall below a pre-determined level, the computerised system prepares a purchase requisition. A storeman collects the purchase requisition and checks the inventory on hand in the warehouse. If inventory levels are low, the storeman signs the purchase requisition and forwards it to the Ordering Department. The Ordering Department prepares a five part pre-numbered order form addressed to the pre-approved supplier. Copy 1 is sent to the supplier, copies 2 and 3 are forwarded to the Receiving Department, copy 4 is forwarded to the Accounts Payable Department and copy 5 is files in the Purchasing Department.
When goods are received, the Receiving Department checks the quality of the goods, ensures there is a purchase order for the goods and then prepares a two part pre-numbered good received note. One of the goods received notes is filed in the receiving department and the other is forwarded to the Accounts Payable Department. The Accounts Payable Department checks that there is a signed purchase requisition, purchase order and goods received note, and then approves the supplier invoice for payment. The Accounts Payable Department prepares a pre-numbered payment voucher and attaches all the documentation and gives it to the accountant for approval. The accountant signs the payment voucher and cancels the supporting documentation. The accountant then makes the payment by bank transfer to the supplier and returns the supporting documents to the Accounts Payable Department for filing.
Required:
a) Identify three strengths in Jones' internal control concerning the purchases and payment for inventory.
b) Explain what misstatement this control should prevent.
c) State a test that you could undertake to test the control is operating as expected.
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