PT ANEKA LESTARI ALAM YOGYA (ALAY) is a manufacturing company that employs you as an internal auditor. Your task is to carry out an operational audit for the purchasing department which consists of 12 staff and several secretaries and is headed by the purchasing manager. The purchasing manager tells you "we run a very efficient business here". He further said, "We have established purchasing policies and procedures. The staff have an average of 12 years experience in purchasing and all have worked long for the company. They have also received on-the-job training and some of them have attended seminars for management training. Our main task is to get the right product with the right quantity to the right department. If you refer to statistics on the number of purchase orders that we handle each year, you will see that in recent years we have processed more purchase orders than before without the need to add staff. I am very pleased with the performance that our staff achieved.

While you are reviewing your purchasing operations, note the following:

a. The company spent a large amount of funds for the purchase of microcomputer and related products obtained from various suppliers. The purchasing department orders a microcomputer that meets the capability requirements at the lowest price. But some suppliers go bankrupt or stop producing goods that the company buys. b. The purchasing department insists on ordering certain chemical products from one supplier for the production department because the supplier is "stable and reliable and because the company is an old supplier of that supplier". Several competing companies, PT ALAY, have bought substitute products that are similar to those products at lower prices. c. Companies usually buy from local suppliers. Based on the results of the questions and answers, you find that this local supplier buys materials from two main producers. Companies like PT ALAY can actually order directly from the main producer. d. One reason why the number of purchase orders is increasing is the number of times companies buy fuel oil (BBM). Actually, if the company buys large quantities at a time, then the company can negotiate for large party purchases. e. There is only one quote (price quote) received from one supplier for each product purchased, although for almost all products there are several suppliers that can be asked for a price quote.

f. The branch head can order supporting materials in the amount of less than Rp 5 million without going through the purchasing department's procedures. You noted that there were several cases of purchases above Rp. 5 million made without the approval of the purchasing manager by giving purchase orders for these items. g. One of the purchasing staff has purchased goods for PT ALAY from a supplier owned by his wife and brother in law.

REQUESTED:

For each weakness that exists in the PT ALAY purchasing system:

a) Identify the weaknesses

b) Also identify the risks associated with the weakness

c) Suggest controls to compensate for exposures due to these risks.