The following is a description of purchasing and account payable procedures in effect at the Prada Corporation:

Using the department submit purchase requisition on prenumbered requisition forms. Each requisition is approved by the using department head, who also indicate the accounting distribution on the requisition form. Two copies are forwarded to the purchasing department, and one copy is filed numerically.

Purchasing accounts for the numerical sequence of requisition forms on receipt. Prenumbered purchase order are prepared, approved, and distributed: one copy each to the requesting, receiving and accounts payable departments. Two copies of the purchase order are sent to the vendor, and one copy is filed numerically with the requisition form attached to it. A copy of the requisition is also forwarded to account payable.

In the receiving department, counters inspect shipments and record their counts on tally sheets. The counters do not have access to purchase orders. The tally sheets are forwarded to the head of the receiving department. She compares the tally sheets with the purchase orders and prepare a prenumbered receiving report. This report indicates the actual quantity received. Items that are returned to the actual quantity received. Items that are returned to the vendor are indicated on the receiving report, and separate prenumbered debit memos are prepared. The department head accounts for the numerical sequence of receiving reports and debit memos. Goods are transferred to the stores department. Copies of receiving reports and debit memos are sent to the stores departments. Each of these departments files its copy numerically.

Invoices are routed from the mailroom to the accounts payable department. Clerks compare invoice details with those shown on the purchase order, requisition form, and receiving report and check for mathematical error. The clerks also account for the numerical sequence of purchase orders and receiving reports.

The clerks withhold invoices until all the preceding documents are received and the matching process is complete. On completion, the clerks assemble the invoice, purchase order, receiving report, and any related debit memos into a voucher package, initial the package, and forward the package to the account payable supervisor. The supervisor reviews the package, initial is to indicate approval for payment, indicate the date payment should be made, and forwards the package to the cash disbursement clerk, who then forwards it to data processing After processing for input, the voucher packages are returned to the accounts payable department.

Cheques prepared by data processing are returned to accounts payable, attached to the corresponding voucher package, and submitted to the account payable supervisor for a final review before submission to the controller for signature. The controller reviews each voucher package and manually signs the cheques. The cheques and voucher package are sent to the treasurer, who also manually sign the cheques. Two signatures are required on all cheques. The treasurers secretary cancels all supporting documents and returns the cancelled document and the cheque to the account payable supervisor. The voucher packages are filed by a clerk, who also prepares a data processing input sheet showing payee, check number, amount, and so on. The input sheets are processed to produce the cash disbursements records. The accounts payable supervisor forwards the signed checked to the mailroom. Freight invoices, which are substantial in total amount, are routed from the mailroom to a clerk, who check their accuracy.

The freight invoices are then forwarded to the account payable supervisor for approval. The supervisor indicates the date payment should be made and then forwards the invoices for the cheque preparation by data processing. At the months end, the cash disbursements book is totaled, and a journal entry is prepared by the cash disbursements clerk. It is approved by the general ledger clerk for posting. The general ledger clerk is independent of all accounts payable and disbursement functions. Monthly bank statements are sent directly to the account payable supervisor, who perform the reconciliation.

QUESTIONS:

ii. Explain in detail FIVE (5) potential internal control weaknesses in the present business procedures in Prada Incorporation.