Toy-Toy (Pty) Ltd is a wholesaler of toys. The company purchases its inventory from local companies which either manufacture or import toys. Little attention has been paid to the accounting and related internal control systems at Toy-Toy (Pty) Ltd over the last few years and evidence of this has started to show. You have been asked by the financial controller to review the companys systems commencing with the acquisitions and payments cycle. Ordering of goods The buying department consists of five buying officers and the senior buyer, Goliath Booysen. The toys which the company sells are broken down into five product categories, i.e. board games, balls, dolls, video games and model cars. Each buying officer is allocated to a product category and is responsible for purchasing inventory for his or her category. Goliath Booysen is responsible for monitoring and analysing the toy market and working with the sales department in deciding on new toy lines which should be purchased. All the companys applications are resident on a local area network. To access the network, employees must enter their user ID and a general password. However, access to the modules on the acquisition application is restricted to ordering and receiving employees by the use of a password known only to employees in these departments (and one or two senior personnel). The inventory Masterfile is divided into five product categories. Each morning the buyers access the category for which they are responsible and based on the quantity on hand per the Masterfile, decide whether to place an order. The inventory Masterfile contains details of the companys preferred suppliers and buyers will normally place the order with that supplier. However, if the preferred supplier is out of stock the buyer will source the items from another supplier. If this is the case, the buyer will add the new suppliers details to the inventory Masterfile. A supplier code must also be entered so that a computer generated purchase order can be printed. To create the purchase order the buyer accesses the create purchase order module of the acquisitions software. The screen comes up formatted as a purchase order which the buyer completes by entering the details of the supplier and of the goods to be ordered, quantity, description etc. The supplier code must also be entered. Once all the details have been captured, a two-part sequenced order is printed out. The buyer mails the top copy to the supplier and files the second copy numerically in a lever arch file. Each buyers purchase orders have their own numerical sequence. To ensure that they do not duplicate an order once it has been placed, the buyer updates the inventory Masterfile by entering a date in the pending order field. Receiving of Goods Goods ordered by Toy-Toy (Pty) Ltd are delivered in boxes which display the quantity and description of the contents of the box on the outside of the box, e.g. ten Leggo sets. Each delivery is supported by a supplier delivery note which lists the quantities and description of the goods being delivered. All goods delivered are directed to the Receiving Department, a physically secure area attached to the warehouse. Any one of the three receiving clerks will accept a delivery. The clerk will determine the validity of the order for the goods being delivered by entering the purchase order number (taken from the supplier delivery note) into the computer via a terminal in the receiving department. If the purchase order is valid, the words accept delivery appear on the screen. The receiving clerk then agrees the number of boxes delivered and the quantity and description of the goods as per the details recorded on the boxes, to the supplier delivery note. If there are any discrepancies, the receiving clerk changes the delivery note accordingly. He and the person deliver the goods will sign both the copies of the delivery note to acknowledge the changes. The boxes are placed in a secure area until the warehouse packers have time to move them into the warehouse, unpack them and place the toys on their respective shelves in the warehouse. At 3pm each working day, one of the receiving clerks (they rotate this function on a weekly basis) accesses the create goods received note module. The screen comes up formatted as a goods received note which the receiving clerk then completes taking the information from the supplier delivery notes. Once the goods received notes have been completed, the quantities on the inventory Masterfile are automatically updated and the date in the pending order 4 field is deleted to convey that the order has been received. The receiving clerk prints out one copy of the goods received note which is attached to the supplier delivery note and is filed sequentially and retained in the receiving department. (The goods received notes remain on the system to be accessed and printed out by the creditors/accounting department where they are matched to the supplier invoice when it arrives.)

REQUIRED Analyse the information above and compile a memorandum for discussion with the financial director of Toy-Toy (Pty) Ltd in which you identify and explain all of the weaknesses in internal controls and related risks in the acquisition cycle detailed above.

Use the following format to present your response:

WEAKNESS	EXPLANATION OF WEAKNESS AND RELATED RISK
WEAKNESS 1