QUESTION $2$

$15$ MARKS

An internal auditor is evaluating the Inventory, Production and Warehousing Cycle of Defy

$($Pty$)$ Ltd$,$ a refrigerator manufacturing company. During the preliminary planning of the audit,

the auditor was provided with the below scenarios:

a$)$ When the components of the refrigerators are ordered, the Ordering Clerk does not

review the order history nor stock in the warehouse is verified by the warehouse

personnel to inform the current order.

b$)$ When the components of the refrigerators are delivered from the supplier, the Receiving

Clerk does not perform physical verification of the quality and quantity of the materials.

The materials are quickly sent to be packed in the warehouse.

c$)$ Within the warehouse, there is no procedure to store the refrigerator components. Once

the components are received, the Packer in the warehouse stores all components

together irrespective of their nature.

d$)$ When the refrigerator components are required in the production process, the Picker in

the warehouse freely takes components from the shelves without properly completing

supporting documentation.

e$)$ Since the refrigerator components are freely taken from the warehouse to production

without proper supporting documentation, when production takes place, the Production

Manager allocates costs to each refrigerator based on his judgement.

For each scenario $($A$-$E$)$ above indicate the following:

$2\mathrm{.}1$ Function as part of the Production and Warehousing Cycle $(5)$

$2\mathrm{.}2$ Describe the risk $(5)$

$2\mathrm{.}3$ Provide a control to address the above$-$mentioned risk $(5)$