You are a member of the audit team of Cowell Limited (Cowell), a large manufacturer of tiles in South Africa. Upon reviewing the current annual financial statements, your audit team reported material discrepancies between the physical inventory on hand and perpetual inventory in the financial records. As a result, the team undertook a detailed risk assessment of the effectiveness of the internal controls over the despatch and delivery of goods, as an important function in the despatch and delivery of goods for the company. Despatch and delivery of goods You identified the following weaknesses in the internal controls over the despatch and delivery of goods: 1. Goods are picked from the warehouse without an authorised picking slip. 2. The picked goods are sent from the warehouse to the dispatch bay. The dispatch clerk has resigned, and nobody was available to check if the correct quantity and type of goods were dispatched. 3. Goods are loaded onto the delivery vehicle without a delivery note. 4. The security guard at the gate allows the driver to go through without checking the goods issued against the delivery note and picking slip. 5. Goods are delivered to the customer and the driver does not request the customer signature as proof of receipt of the goods. 6. The accounting department updates the general ledger once the driver confirms he or she has delivered the goods. Payroll The company has a large, waged staff; the company employs about 100 skilled and semi-skilled wage earners. As part of the planning for the audit, you obtained the following information: 1. The 100 employees are spread evenly over three departments. 2. Each department is headed by a foreman. The foremen report to Mpho, the factory manager. 3. The three departments are in a single factory building and to enter or leave the building, hourly paid employees must pass a clock card through a clocking machine to record their time of entry or exit and to activate the control gate. The clock is located at the control gate. There is only one point of entry/exit. 4. The clocking procedure is observed by Ben Bigg, the factory administration clerk, who has a glass fronted office overlooking the clocking area. 5. Employees work from Monday to Friday and are required to "clock in" by 7 am and "clock out" at 4 pm. Any additional time worked is regarded as overtime. Overtime work is carefully planned and scheduled by the section foremen. Mpho authorises the schedule of overtime. While the audit team was testing the controls around wages, it was noted that some warehouse employees clock in on behalf of one another, by swiping a fellow employee's clock card at the warehouse entrance in his or her absence. 6. Wages are paid every two weeks and the clock cards for each wage period are prepared by the human resources department and sent to Ben Bigg with a listing of each employee for whom there is a card. Ben Bigg agrees the cards to the list, signs the list and keeps a copy. Payment of creditors In addition to the above measures taken by management, the financial manager is also concerned about the risk of EFT (Electronic Funds Transfer) payments to fictitious creditors. Your audit team recommended that the company reviews and improves its controls over EFT payments. 1. 2. 3. REQUIRED: Despatch and delivery of goods 1.1 Make recommendations to management on the internal controls that could be implemented to mitigate the weaknesses that you identified. (15) Present your answer in the following format: Internal control (1% marks per internal control) 4. 5. 6. Weakness Maximum: 15 marks Note: There can be more than one internal control per weakness.