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Prob 6.8 Tralor Corporation manufactures and sells several different lines of small elec- tric components. Its Internal Audit Department completed an audit of the expenditure controls for payables, including the controls over the authorization of transactions accounting for transactions, and the protection of assets. The auditors noted the fol- lowing items: Routine purchases are initiated by inventory control notifying the purchasing department of the need to buy goods. The purchasing department fills out a prenumbered purchase order and gets it approved by the purchasing manager. The original of the five-part purchase order goes to the vendor, a copy is retained in purchasing, a copy is sent to the user department, a copy is sent to receiving to be used as a receiving report, and a copy is sent to accounts payable in the accounting department. 2 For efficiency and effectiveness, purchases of specialized goods and services are negotiated directly between the user department and the vendor. Company pro cedures require that the user department and the purchasing department approve invoices for any specialized goods and services before making payment. 3 Accounts payable maintains a list of employees who have purchase order approval authority. The list was last updated 2 years ago and is seldom used by accounts payable clerks. 4 All vendor invoices are recorded in an invoice register. The register indi- cates the receipt date, any invoices dealing with special orders, when those special orders are sent to the requesting department for approval , and when they are returned. Review of the register indicated that there were seven open invoices for special purchases, which had been forwarded to operating departments for approval over 30 days ago and had not yet been returned. 5 Prior to making entries in accounting records, the accounts payable clerk checks the mathematical accuracy of the transaction, makes sure that all trans- actions are properly documented (the purchase order matches the signed receiving report and the vendor's invoice), and obtains any departmental approval of invoices for special purchases. 6 All approved invoices are filed alphabetically. Invoices are paid on the 5th and 20th of cach month, and all cash discounts are taken regardless of the terms. 7 The treasurer signs the checks and cancels the supporting documents after they are paid. An original document is required for a payment to be processed. 8 Prenumbered blank checks are kept in a locked safe accessible only to the cash disbursements department. Other documents and records maintained by the accounts payable section are readily accessible to all persons assigned to the section and to others in the accounting function. Required Review the eight items listed and decide whether they represent an internal control strength or weakness. a. For each internal control strength identified, explain how the described proce- dure helps achieve good authorization, accounting, or asset protection control. b. For each internal control weakness identified, explain why it is a weakness and recommend a way to correct the weakness. (CMA adapted) Scanned with CamScanner