Just In Time Electronics Inc. ("company") builds traveling robots used in hospitals that kill the Covid-19 virus using ultraviolet light. Its manufacturing plant is also a warehouse. Below is a description of its purchasing, payable, and cash disbursement procedures regarding the acquisition of component parts/supplies used in the production of the robots. The company has the following departments that are involved in the purchase process: 

1) Purchasing Department 

2) Receiving Department 

3) Accounts Payable 

4) Warehouse Department (stores robot components) 

5) Stores Department (stores miscellaneous supplies used in production) Purchasing The Purchasing Department is responsible for obtaining the requested quantity of the components/supplies for the company at the lowest price possible and delivered by the wanted delivery date. The company does not maintain any pre-approved list of suppliers. The Purchasing Department simply goes on the Web each time a purchase is requested and searches for suppliers who can supply the required components / supplies. Anyone in the Purchasing Department can access the system and prepare a purchase order ("PO") without having to use a password. The company does not have purchase requisitions in its computer system. Rather, the warehouse verbally advises the purchasing department what components/ supplies they need and the purchasing department issues a PO that's sent to the supplier. 

The PO is printed only after the Accounts Payable Department ("A/P") is notified by an e- mail received from the Receiving Department confirming that the goods have been received (see below - Receiving for explanation). The company's order entry and tracking system automatically assigns the next number in a series to the PO when it is printed. Receiving When parts are received from a supplier shipment, the receiver compares the type of goods and quantity with the details stated on the PO. The PO is easily retrieved through the company's computer system and does not require any password to be accessed. Once online, the receiver can see all the unit prices and extensions of the goods ordered. If the quantity received differs from the quantity ordered appearing on the PO, the receiver adjusts the PO amount online. When the goods are checked by the receiver, the receiver sends an e-mail to A/P, recording the type of goods (i.e. product #, description) quantity, and date received. A/P uses the e-mail to create a receiving report. The receiving report does not show any evidence of a pre-numbered sequence. Once the receiving report is generated and printed the PO is printed out with a system-generated sequential PO # (which is only assigned a PO# at the time of printout). The PO and the receiving report are then filed in a "pending file" in A/P waiting for the eventual receipt of the supplier's invoice. Payment of Supplier Invoice When the supplier's invoice is received by the "purchasing department", one of the purchasing department's staff sends an e-mail to A/P, noting the supplier name, invoice #, invoice date, parts description, $ amount of the invoice (broken down by # of units, price per unit, extended cost, cost subtotal, GST, QST and Grand total) and payment terms. The supplier's invoice is then filed in the supplier file located in the purchasing department. There is no physical evidence appearing on the invoice that it was verified, posted, and paid. A/P then matches the e-mail's invoice information to the receiving report and PO found in the "pending file". If all the supporting documents are correct A/P then posts the invoice using the information from the e-mail. Once the invoice information is posted all the supporting documentation is filed in the A/P department in the supplier's file. Nowhere on the documentation is there any reference regarding the posting of the invoice. When the payment is due A/P prepares a pre-numbered cheque for the controller to sign. Only the cheque is then forwarded to the controller for signing. The controller signs the cheque and returns it to A/P who then sends the cheque out to the supplier. At the end of every month the controller receives the bank statement directly from the bank with the canceled cheques, The controller then reviews each cheque for his signature, cheques the back of the cheque for deposit stamp/endorsement of the supplier, and then traces all cheques to the bank statement and reviews all other disbursements and adjustments that have been charged to the bank account. Inventory of Components and Supplies Inventory is physically moved to the warehouse by the employees of the receiving department. The warehouse is located in a locked-up area at the far end of the plant. 

The warehouse employees place the components in their proper location on the shelves and enter the information in the computer system noting the part #, quantity received, and location. The store's department is located in a separate restricted fenced-in area for supplies such as gloves, wire, and adhesives, all of which are used in significant quantities on a regular basis. When an assembly line worker requires supplies, the supervisor fills out a serially pre-numbered requisition card, signs it, and gives it to the worker, who then takes it to the "stores department" to obtain the necessary items. Each supervisor has a stack of requisition cards. 

Required 

1) Identify five (5) internal controls that appear to be effective in the company's system. Explain in proper detail (i.e. not in sentence fragments or one-word answers) why each control is necessary (i.e. by existing what is prevented from happening). 

2) List ten (10) examples of weak internal controls in the company's purchases, accounts payable, and payment system. 

a. Explain in proper detail (i.e. not in sentence fragments or one-word answers) why each one of your examples would be a weak control using an example of what could go wrong ("WCGW"). b. For each control, weakness provides a recommendation to the company on what control should be implemented to address the weakness. Set your answer up in an excel grid as follows: Internal Control Weakness Recommended Internal Control to Implement (WCGW) 

3) During your review of the company's purchasing system you determined that the company does not maintain any pre-approved list of suppliers for components. The Purchasing Department simply goes on the Web each time a purchase is requested and searches for suppliers who can supply the required components at the best price and meet the delivery date. 

a. Explain why this approach to purchasing components may be of concern to the Quality Control Department. 

b. In light of how suppliers are selected what could the company's possible exposure be to customer claims and the possible impact on the quality and value of the inventory?