Last year the Diamond Manufacturing Company purchased over $10 million worth of office equipment under its special ordering system, with individual orders ranging from $5,000 to $30,000. Special orders are for low-volume items that have been included in a department managers budget. 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. The special ordering system functions as follows:

Purchasing A purchase requisition form is prepared and sent to the purchasing department. 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 also filed 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 a vendor invoice is received, it is matched with the applicable purchase order, and a payable is created by debiting the requisitioning departments 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 $10,000. Checks for less than $10,000 are machine signed. The cashier maintains the check signature machines key and signature plate and monitors its use. Both the cashier and the treasurer sign all checks over $10,000.

REQUIRED: For each weakness identified in the given scenario, match the appropriate control to put in place to mitigate the weakness.

	Buyer does not verify that the department heads request is within budget.
	No procedures established to ensure the best price is obtained.
	Buyer does not check vendors past performance.
	Blind counts not made by receiving.
	Written notice of equipment receipt not sent to purchasing.
	Written notice of equipment receipt not sent to accounts payable
	Invoice quantity not compared to receiving report quantity.
	Notification of acceptability of equipment from requesting department not obtained prior to recording payable.
	Voucher package not cancelled when invoice paid.
	No mention of bank reconciliation.

a.	Compare requested amounts to total budget and YTD expenditures.
b.	Send written notice of equipment receipt to purchasing.
c.	Solicit quotes/bids for large orders.
d.	Obtain confirmation from requisitioner of the acceptability of equipment ordered prior to recording payable.
e.	Black out quantities ordered on copy of Purchase Order sent to receiving Provide incentives if discrepancies between packing slip and actual delivery are detected.
f.	Prepare a vendor performance report and use it when selecting vendors.
g.	Treasurer should mark voucher package as PAID when check is signed.
h.	Send written notice of equipment receipt to accounts payable
i.	Bank account should be reconciled by someone other than Accounts Payable or the treasurer.
j.	Compare/verify invoiced quantity with quantity received.