You are currently reviewing and understanding the purchases system of your client (XYZ Super Store INC.) as a part of the audit assignment. Following are the important notes taken by your audit team member regarding the XYZ's purchases system: Ordering Whenever staff members feel that certain goods are needed, they inform their departmental manager, who then phones the purchasing department to get the goods at their earliest possible. The purchasing department then order the goods as required without carrying out any checks for the validity of the purchasing requests. The XYZ has its own list of preferred suppliers with the prices agreed with each supplier. This list of suppliers with the agreed price information is saved in the computer. Purchase orders can only be given to these suppliers in the list. The junior staff in the purchasing department can add any new suppliers in the list at any time. The computer generates prenumbered purchase orders which are then emailed to the suppliers by the same junior staff in the purchasing department. Some of the suppliers acknowledge the orders received by email. Certain suppliers have facility to track the orders status online but junior staff in the purchasing department never follow up the orders. Receipt of Goods The goods are delivered right at the door of the storeroom. Store staff match/check the goods with the suppliers delivery note in the presence of the delivery driver, and then the store supervisor signs the delivery note to confirm that the goods were checked and received. Right after this these goods are added to the inventory records and delivery documents are sent to the accounting/finance department. The store supervisor informs all the relevant departments about goods received at the end of each day. Each department then pick up their goods (if any) on the following day after checking the quality of goods. Any goods which are not claimed/picked up within three business days are stored in the storeroom until claimed. Certain goods are never picked up and are there in the storeroom for months. Invoicing All invoices from the suppliers are directed to the finance department. The finance department staff check/match the invoices with the delivery notes/documents (sent by the storeroom). Then these invoices are recorded in purchases journal and purchases ledger by the newly hired junior accountant. He also prepares monthly reconciliations between the purchases ledger and purchases ledger control account (total creditors account). He also reconciles the purchases ledger with suppliers statements, monthly. Internal Audit: The company has recently established an internal audit department which has started attending and monitoring the monthly stock counts only.

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Identify and explain deficiencies in the internal controls, recommend improvements for these deficiencies, and describe one test of control for each of your recommendations.

Note: Present your answer in a table with 3 columns, one headed Deficiency, second one headed Recommendations and the third one headed Test of Controls (30 marks)