Weaknesses in Internal Controls of Chipps Limited

This document discusses the weaknesses in the internal controls of Chipps Limited and their impact. It also suggests controlling measures to mitigate these weaknesses.

Running head: ACCOUNTING INFORMATION SYSTEM
Accounting Information System
Name of the Student:
Name of the University:
Authors Note:

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ACCOUNTING INFORMATION SYSTEM
On the basis of the facts provided about the Chipps Limited the various weaknesses
associated with the internal controls of the organization and resultant impact and controlling
measures are documented below in a tabular format.
Weaknesses in relation to the
in internal controls
Effects and impact of such
weaknesses
Controlling measures to
mitigate weakness
Responsibilities and duties
are not properly segregated as
one of the five purchasing
clerks (PCs) verifies the
purchase requisition.
The responsibilities of
verification of purchase
requisition cannot be fixed.
Ensuring proper segregation
of duties and responsibilities
of five PCs.
Improper procedure of
selecting supplier. One of the
PCs selects the supplier based
on previous orders. This is
not a proper procedure to
select a vendor to supply
inventory.
Selection of wrong supplier
could lead to higher prices of
materials resulting in increase
of cost of production and
overall expenditures of the
organization. Apart from that
the quality of inventory might
also be adversely affected if
not proper suppliers are
selected to supply inventory.
Following proper procedure
to select suitable suppliers to
supply inventory. A proper
procedure includes inviting
tender from suppliers,
verifying tenders and
selecting the most suitable
supplier to place orders to
procure required inventory
(Simkin, Norman & Rose,
2013).
Verbal communication A verbal communication is an There must be a formal and

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ACCOUNTING INFORMATION SYSTEM
between receiving department
and the PC of receiving
goods.
informal communication
which lacks proper
documentation of goods
received by the receiving
department. The quantity and
quality of goods will not be
known to the PCs in a verbal
communication (Burt, 2014).
written communication
between the receiving
department and the PCs of
goods receipt. The written
document shall be prepared
by the receiving department
with all details regarding the
goods received to allow the
PCs to verify the actual goods
received with the purchase
requisition.
Verbal notification of
requisitioning department
head to the purchase
department.
Verbal notification could
create number of problems
for both the requisitioning
and purchasing department as
lack of documentation often
creates confusion about the
actual quality and quantity of
goods received. This will
further make the job of
inspection and verification of
goods received difficult
(Turner & Weickgenannt,
Written documentation shall
be maintained by the
requisitioning department and
shall be sent to the purchase
department for verification.

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ACCOUNTING INFORMATION SYSTEM
2013).
Filing of purchase orders in
open purchase order file.
The purchase orders must be
kept in a secure place as
keeping it in the open file
increases the risk of
misplacing of document.
The PO must be kept at
secure place to ensure that it
is not lost and properly
recorded in the information
system (Daft & Marcic,
2014).
Management of cheque
signature machine key by the
cashier is a gross violation in
the internal control system of
the organization.
The cashier should not be
allowed to maintain the key
of cheque signature machine
as this is direct conflict with
his responsibility of
managing cash.
The cheque signature key
shall be maintained and
managed by a separate person
and not by the cashier. The
duties and responsibilities of
cashier shall be limited to
handling cash only.

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ACCOUNTING INFORMATION SYSTEM
References:
Burt, I. (2014). An Understanding of the Differences between Internal and External Auditors in
Obtaining Information About Internal Control Weaknesses. SSRN Electronic Journal, 3(4),
21-47. doi: 10.2139/ssrn.2538544
Daft, R., & Marcic, D. (2014). Building management skills (7th ed., pp. 11-52). Mason, Ohio:
South-Western Cengage Learning.
Simkin, M., Norman, C., & Rose, J. (2013). Accounting information systems (6th ed., pp. 31-
145). Hoboken, NJ: John Wiley & Sons.
Turner, L., & Weickgenannt, A. (2013). Accounting information systems (3rd ed., pp. 47-102).
Hoboken, NJ: John Wiley and Sons.