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Problem 6 (20 marks) The below business process diagram depicts the basic activities performed in Fantastic Toy Factory (FTF)'s expenditure cycle. Employee Production Control
Problem 6 (20 marks) The below business process diagram depicts the basic activities performed in Fantastic Toy Factory (FTF)'s expenditure cycle. Employee Production Control Purchasing Receiving Clerk Activity Performed (sequential, left-to-right across all rows) Issue Bill of Materials Order Inventory Receive & Count Inventory Inventory Control Store Inventory Accounts Payable Treasurer Receive Invoice from Supplier Use P.O and R.R. to Approve Invoice and Update A/P Make EFT Payment to Supplier Monthly Receive & Reconcile Bank Statement The following additional information supplements the above diagram: FTF has 3 purchasing clerks responsible for purchases of different types of inventories. The purchase clerk based on the bill of materials calculates how many inventories should be ordered to meet the production requirements. The same purchase clerk also selects a supplier and prepare a purchase order which is sent to the supplier. After counting and inspecting incoming deliveries, the receiving clerk enters the following information into the system: o Quantities received for each inventory item o Date and time received o Supplier number After entering that information, the receiving clerk takes the inventory to the inventory control depart- ment for storage. Access to the inventory control department is restricted. Inventory is only released to production when properly authorized request is received. When the in- ventory is released, the inventory control clerk updates the perpetual inventory system. Physical counts of inventory are taken every three months. Discrepancies between the counts and rec- orded quantities on hand are investigated. Upon resolution of the investigation, the plant manager au- thorizes adjustments to the perpetual inventory records to change them to the amount actually on hand. Required: Identify four control weaknesses in FTF's expenditure cycle. For each weakness, explain the problem or fraud that may happen and suggest how to improve the procedures to mitigate that threat.
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