You are an audit manager in the internal audit department of KLE Co$.,$ a listed retail company. The internal audit department is auditing the company's procurement system. The system operates as follows:

Ordering

KLE's ordering department consists of six members of staff: one chief buyer and five purchasing clerks.

All orders are raised on pre$-$numbered purchase requisition forms and are sent to the ordering department.

In the ordering department, each requisition form is approved and signed by the chief buyer. A purchasing clerk transfers the order information onto an order form and identifies the appropriate supplier for the goods.

Part one of the two$-$part order form is sent to the supplier and part two to the accounts department. The requisition is thrown away.

Goods received

When goods are received, the goods inwards department immediately raises a two$-$part pre$-$numbered Goods Received Note $($GRN$).$

Part one is sent to the ordering department, which then forwards the GRN to the accounts department.

Part two is filed in order of the reference number for the goods being ordered $($obtained from the supplier's goods dispatch documentation$)$ in the goods inwards department.

KLE Co$.\text{'}$s management is concerned that a number of inefficiencies in the procurement system may be having a negative financial impact on the company. As a result, they have requested the internal audit department to carry out an audit focused on the company's procurement practices.

Required:

Q$1.$ Which of the following is NOT a likely effect of the deficiencies in the internal control system for ordering described above? Give reasons.

Purchases may be made unnecessarily at unauthorised prices.

Subsequent queries on orders cannot be traced back to the original requisition.

The order forms may contain errors that are not identified.

Goods could be ordered twice in error or deliberately.

Q$2.$ Which of the following statements are valid recommendations with regard to improving the internal controls for goods received described above?

The ordering department should match orders to GRNs and mark orders as closed once all goods have been received to enable any outstanding orders to be chased up$.$

The first copy of the GRN should be sent directly to the accounts department without first going through the ordering department to prevent delays in recording the purchase.

The goods inwards department should review the goods for their condition in order to identify and return any damaged goods.

GRNs should be filed in date order or by purchase order number instead of the supplier's reference number to ensure that they can be matched easily to orders.

a$.1$ and $3$

b$.1,2$ and $3$

c$.1,2$ and $4$

d$.1,3$ and $4$

Q$3.$ As part of your audit of the procurement system, you have recommended that the goods inwards department ensure that the goods received are valid business purchases by matching all deliveries to an authorised order form before issuing a GRN$.$

Which of the following would be an appropriate test of control to confirm that the control is operating effectively?

For a sample of orders, check that there are matching goods received note.

Check that the numerical sequence of purchase orders is complete.

For a sample of goods received notes, check that there is an authorised purchase order.

Check that the numerical sequence of goods received notes is complete.

Q$4.$ KLE Co$.\text{'}$s management is keen to increase the range of assignments that the company's internal audit undertakes.

Which of the following assignments could the internal audit department be asked to perform by management? Please justify your answer.

Undertake 'mystery shopper' reviews, where they enter the store as a customer, purchase goods and rate the overall shopping experience.

Assist the external auditors by requesting bank confirmation letters.

Provide advice on the implementation of a new payroll package for the payroll department.