QUESTION 2 (25 Marks)

Siyakhula (Pty) Ltd is a small manufacturing company. The companys accounting functions are carried out by the accounting staff consisting of the accountant, Mary Rooseveld, and two clerical assistants, Stella Stirling and Dean Ramjan. The new owner of the business, John de Marzo, is concerned about a number of processes followed and, not having a business background, has asked you to review and report on certain of these processes. However, his immediate concern is the control over the payment of creditors. To gather first-hand knowledge of how the system currently works, John de Marzo himself compiled an accurate description of the system which he has given to you.

1. When an invoice is received from a supplier, it is promptly entered into the purchase journal by Stella Stirling and filed alphabetically by supplier name. When the suppliers monthly statement arrives, Stella Stirling agrees the invoices received to the statement. She also checks that any payments that were made to the supplier by Delmundo (Pty) Ltd are reflected on the statement.

2. If an invoice reflected on the statement has not been received, Stella Stirling highlights the invoice(s) and marks it outstanding on the statement. The full amount reflected on the statement is paid. When the outstanding invoice is received, it is filed with the statement to which it relates and the outstanding mark on the statement is crossed out and dated.

3. Using the statements, Stella Stirling then makes a list of all creditors and the amounts which they are to be paid. The list is passed to Mary Rooseveld, who writes out a cheque for each creditor under R5 000. All cheques are carefully written out and marked not transferable. Mary Rooseveld signs each cheque and returns them with the list to Stella Stirling. Stella Stirling confirms the amounts of each cheque and that there is a cheque for each creditor on the list under R5 000. Stella Stirling writes the cheque number next to each payment on the list and then mails the cheques to the creditors attached to a Delmundo (Pty) Ltd compliment slip. If the amount to be paid is more than R5 000, it is paid by EFT and not by cheque.

4. To pay creditors over R5 000, Mary Rooseveld accesses the electronic funds transfer facility on her computer and compiles a schedule of payments to be made by EFT to creditors. She obtains this information from the creditors list prepared by Stella Stirling. She carefully checks the details, namely the bank, branch code and account number of the creditor to be paid against a hard copy listing which she keeps for all creditors.

5. Stella Stirling passes the creditors list to Dean Ramjan, as he is solely responsible for the cash payments journal, namely writing it up, posting transactions to the general ledger and reconciling the cash receipts and payments journal to the bank statement monthly.

REQUIRED

Identify the weaknesses in the payments system described by John de Marzo. For each weakness you identify, explain briefly why you consider it to be a weakness (i.e. what can go wrong because of this weakness).