Question

Paul Williams recently joined XYZ2 Limited as the head of accounting department. Williams spent the first few weeks to analyse the account information system. Based on this analysis, Williams is concerned about the purchase system of XYZ2 Limited. Here is the details of purchase system.

The purchasing agent of XYZ2 Limited periodically checks inventory levels from a computer terminal, which is connected to a central accounting system. The agent searches the inventory file for items that need to be ordered. He then selects a supplier, prints a hard copy of the purchase order, and mails it to the vendor. The clerk files one copy of the PO in the department and sends a second copy to the AP Clerk. When the inventories arrive at the receiving department, a receiving clerk reconciles the items with the packing slip, inspects them for condition, and manually prepares a three-part receiving report. The clerk sends one copy to the purchasing department to close out the open PO, files one copy along with the packing slip in the receiving department, and sends one copy with the inventory to the warehouse.

In the purchase system, account payable clerk performs some key roles. When the accounts payable clerk receives a hardcopy invoice from the vendor, she reconciles the invoice with the purchase order, records the liability in the AP Subsidiary Ledger from the terminal in her office, and assigns a due date for payment. The warehouse clerk receives the inventory, reconciles it with the receiving report, and updates the inventory subsidiary ledger from a terminal in the warehouse.

Required:

Describe the uncontrolled risks in the system of XYZ2 Limited. Against each identified risk, describe the physical controls needed to reduce the risks.