Sweets R Us Pty Ltd. is a large confectionary company that manufactures a range of standard sweet products and some specialty products for the Australian market. Most of the company's production is in standard chocolate goods and they offer personalised packaging for promotional or fundraising purposes. They also provide uniquely moulded and decorated chocolate items for special events such as grand finals. You have been allocated the role of assessing the controls in the Purchases, Accounts Payable and Payments system, and have obtained the following details:

Raw material ordering process

1. To maintain and control product quality a limited number of trusted suppliers are used.

2. The production manager oversees raw material inventory. Orders are placed based on current production orders and quantities of raw material currently on hand with next day delivery where possible.

3. No formal purchase order system is used.

Raw material warehousing procedures

1. The warehouse personnel are trusted, long-term employees.

2. One of the warehousing staff ensures that all goods received, primarily raw materials,

are in good order and signs the couriers' delivery dockets in acknowledgment of

materials received.

3. Movement of in and out of the warehouse is not recorded, but the production manager monitors stock levels and movements daily.

Note: Finished goods are warehoused in a separate secured area that only the production manager and his assistant have access to.

Accounts payable system

1. Supplier invoices are received in the accounts department via email and printed. The details are entered into the accounts payable system by the accounts payable clerk, who then stamps the invoice as processed. The computer system automatically calculates the payment due date based on the supplier's credit terms that have been entered into the system.

2. As there are only a few suppliers each week, the accounts payable clerk validates the outstanding invoices via a phone call with the production manager. The production manager has an excellent memory for what he has ordered, and the deliveries received.

3. The computer system automatically generates a weekly list of invoices due for payment. The accounts payable clerk flags the invoices for cheques to be processed as direct deposits are not used. The system does allow the user to exclude an invoice from the payment run. The accounts payable ledger and general ledger are automatically updated once the payment runs are complete.

4. The cheques are forwarded to the financial controller for signature. Supporting documentation is only attached to the cheques for non-major suppliers. The financial controller calls the production manager to verify the review process (step 2) has taken place, and other payments are verified to the attached invoice. If the financial

controller is not available the accounts payable clerk usually has the cheques signed by the marketing manager. The payables clerk avoids asking the CEO to sign cheques as he asks too many questions. Any supporting documentation to the cheque is signed to avoid duplicate payment.

5. Monthly statements are received from the suppliers. However, the accounts payable clerk does not believe statement reconciliations are necessary.

Required

1. Identifies and explains ten (10) control weaknesses associated with the purchases, accounts payable and payments system outlined above.