You are on the audit of HH (Pty) Ltd a company which manufactures security devices, e.g. burglar alarm units, surveillance cameras, etc. Some months prior to the audit, the company appointed Simon Brown as the internal auditor of the company. He reports to Krishen Vather the financial manager. Prior to his appointment as internal auditor, Simon Brown had been an administration clerk in the creditors section. However, due to a restructuring of the creditors section, his position had become redundant, and his options were either to leave the company or accept the newly created post of internal auditor. Although he has no formal training in auditing, Simon Brown is regarded as a competent and enthusiastic staff member who could develop into a satisfactory internal auditor. It has also been decided that, as internal auditor, he could be used effectively if staff members in the accounting department are absent, on annual or sick leave, to carry out their responsibilities. You had considered the possibility of relying on some of the work which Simon Brown had carried out relating to the inventory and production cycle and using him to assist with certain aspects of the year-end inventory audit, but decided at this stage it was not appropriate to do so. In addition to your audit responsibilities, Krishen Vather has requested that you evaluate certain aspects of the production cycle and make recommendations for improvement where necessary. He believes that improvements are required and that the Board would be receptive to reasonable recommendations. He has provided you with the following narrative description:

Systems description production

1. The company manufactures a standard range of products, each of which has its own product code.

2. Manufacture is carried out by ten technicians who each have their own workstation in the factory. The workstation consists of a bench and all the necessary equipment the technician requires to build and test the products.

3. The factory foreman, Frans, is in charge of the factory and reports to the production manager.

4. The sales department notifies the production manager of demands for the companys products on a weekly basis (This procedure works well).

5. A large production blackboard is positioned at the entrance to the factory this blackboard displays each workstation number and the name of the technician assigned to that workstation. Below these headings are columns to enter the date, product code and quantity of the product to be manufactured.

6. Each Monday morning the production manager assigns work to the technicians by updating the date, product code and quantity columns on the blackboard.

7. All of the technicians are trained to manufacture all of the companys products and have an assembly manual to which they can refer if necessary.

8. Components for manufacture are kept in a warehouse adjoining the factory. As technicians generally know what components are needed to manufacture each product (they can refer to the assembly manual), they will personally select the components from the warehouse shelves as they require them.

9. Once the technician has constructed and thoroughly tested a batched of items, he loads them onto a trolley and takes to the finished goods warehouse.

10. On arrival at the finished goods store he unloads the items in the receiving area and returns to his workstation.

11. Before the end of each working day a warehouse clerk who is responsible for keeping the components warehouse and finished goods warehouse clean and tidy, takes the items manufactured from the receiving area places them on the allocated shelves in the warehouse. No perpetual inventory records are maintained.

REQUIRED

Identify the weaknesses in those aspects of the production cycle described above, and for each weakness make suitable recommendations for improvement. (Do not concern yourself with the costing of manufactured items)