Internal Control Weakness in Special Purpose Ordering System of Platinum Manufacturing Group

This assignment discusses the issues faced by Platinum Manufacturing Group with respect to their special purpose ordering systems and internal control weakness. It also provides recommendations and conclusions to overcome these issues.

Audit
2017

1
By student name
Professor
University
Date: April 7 , 2018.
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Executive Summary
In this assignment the issues faced by the Platinum Manufacturing Group with respect to their special
purpose ordering systems and their internal control weakness is discussed. It is very essential for any
company to have good internal controls so that it will help in making the system error free. This is a
special kind of orders that are placed by the management but there are a lot of issues that are
associated with it and the same is analyzed in this assignment with proper recommendations and
conclusions.
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Contents
Question 1…………………………………………………………………........................................................4
Question 2…………………………………………………………………………………………………………………….….4
Question 3…………………………………………………………………………………………………………………….….8
Refrences.....……………………………………………………………...........................................................11
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1.The platinum Manufacturing group have ordered equipment under its ‘special ordering system’ in
which the company spend more than $13 million on its office equipment. These were divided between
the range of $3000 to $30,000 were all the payments were categorized in two different section, one that
is more than $10,000 and less than $10,000 and based on that they were signed and approved. The
special ordering system have definite methods of ordering, purchasing, recording and fulfilling the order
for the company by the vendors.
2.
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Special Purpose
Ordering
system
Purchasing Department
A purchase requisition form is submitted to
the department
It is verified by the buyer and the order is
placed to the supplier
Verbal confirmation is given to the
department.
Once a month the purchase file is checked to
account for open orders
The Receiving department receives
the order.
Stamps the order received and
informs the purchasing department
The accounts payable team matches the
order received with the open orders
Debits the requisite equipment amount
And files the copy in the purchase
register
The treasurer and the cashier signs
the cheques manually and through

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3.
1. Internal Control Weakness in the system  Internal control weakness refers to
situations when the internal
management of the company is not
strong enough and that might lead to
errors in the system. In case of the
special ordering system there are certain
internal control weakness that the
management should take care of (Abbott
& Kantor, 2017)
 Verbal orders – Most of these orders are
placed verbally by the purchasing agents
to the suppliers and when the
confirmation of the order is received
from the vendors, the same is informed
verbally to the department. So, in this
way there is lack of proper
documentation and proof that might be
required for future reconciliation. There
may be chances that there is a difference
between what the buyer said and the
suppliers gave. Thus, it is important that
the management should try to remove
this from the system and everything that
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is done should be properly documented
and authorized.
 No Segregation of Duties- One more
major internal control issue is that there
is no segregation of duties between the
people in the system. The purchasing
agents have been given the major
responsibility of doing all the work
related to placing of the order, checking
with the supplier, following up on unpaid
order, and informing the authorities. So
in case there is any malfunctioning by
these purchasing agents, the
management would never be able to get
hold of the same. Also, there should be
proper authorization, on every step so
that there is proper regulation and no
party has all the powers that they can
misutilised.
 It can also be seen that the cashier has
been given the duty to regulate the
cheques that are less than $10,000 that
are machine printed and all these
machines are regulated by the cashier.
So, they can misutilised the same, and
get more cheques verified and signed
than what is (Alexander, 2016). The
cashier and the treasurer have been
given the responsibility of signing
cheques that are more than $10,000. So
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they have all the power to misutilised the
funds of the company, because there is
no proper authorization from the
management.
 Lack of proper books maintenance – One
more internal control weakness is that
the books are debited and credited
before the order is paid or received. All of
this is happening on an advance basis
where the accounts clerk files in the
purchase order as paid on the due dates
even though the same has not been
approved by the authorities. So, this
might lead to large number of issues for
the company, in case the order claimed
as paid are not actually paid off
2. Impact of Internal control weakness on
the organization
Weakness of internal control system can affect
the company’s overall performance in terms of
people misutilising the company’s funds and that
might lead to losses in the future. It also hampers
the flow of system that has been specially
designed for the special orders, and can affect
the overall audit trail for the company. Thus,
weakness in internal control system is dangerous
for the long-term development of the company
and its departments. (Chron, 2017)It might lead
to large scale discrepancies that might affect the
overall growth and development of the company
in the long run.
3. Conclusion and Recommendations
Internal Control Measures that can be
 Better documentation – The
management can replace the verbal
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implemented by the company. confirmation with written ones, so that
there is proof for future reference and all
the higher authorities must be copied in
the trail, so that they are aware about
the dealings between the buyers and the
suppliers. When the goods are received
the same should be entered into registers
and not conveyed verbally, as that might
lead to errors in the future. This will help
to keep a check on the orders placed by
the management.
 All the cheques should be signed
manually and should be verified by third
parties that are not the cashier or the
treasurer for the company. This will help
in keeping a check on the performance of
the employees and would also help them
in authorizing all the payments correctly
(Dichev, 2017).
 In case the cheques are signed by
machine, then that should be done by
someone else, who is not the cashier or
the treasurer for the company. The
cashier should not be given all the
responsibility of dealing with the cash
with no proper supervision from the
management.
 Timely audit of the system should be
conducted so that in case there are any
issues involved, can be identified. The
management should also see that the
auditors apply the necessary amount of
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due diligence in performing their duties.
 The management should also check that
the purchase registers are timely updated
and in case some orders are not paid by
the due date, they should be entered into
separate files and once the payment is
done, then the equipment must be
debited with that amount.
4. Use of IT for control Procedures Nowadays there has been tremendous
development in technology and that has been
made it very easy to fight with such internal
control issues and get better results. Various
software has been developed that can help the
companies in keeping a trail of the work that is
done by the management and the overall return
from the same (Chariri, 2017). Application of IT
helps in saving a lot of time and helps in making
the system fast and generate better results for
the future. In case the given company applies IT
to apply the control measures the same will
benefit the company for a long-term
development. The various applications of IT with
respect to specific control measures by the
company are –
 Electronic forms – these forms can be
used in place of verbal confirmation to
place orders. The authorized person can
file in these forms with their demands
and the buyers can then update the same
with the price from the suppliers (Yadao,
2018). Once the authorities are
comfortable with the prices the order can
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be placed by the company. This will help
in keeping a record with the respect to
quantity demanded and supplied and
also the total price that the suppliers are
charging for the goods.
 Barcode Scanning – Barcode scanning can
be useful once the goods are received in
the company. They can properly tagged
with their specific order numbers and this
will help in keeping a trail on the total
quantity of products received in lieu of
each order placed by the company. It is
an efficient and transparent way for the
management to keep a note on the
products supplied and in case there is any
shortage the same can be applied and
corrected by the authorities. It will also
help in providing a proper trail to the
auditors of the company (Maynard,
2017).
 Electronic Fund Transfer – these are
better than manual or machine signing of
cheques, as this will help in keeping a
record on the total amount paid to the
supplier and whether it is in sync with the
total price that the supplier demanded
from the authorities. It will also help in
segregating the duties from the cashier,
as the EDI is done on the net and there is
proper record, so the authorities can
time and again check it to make sure that
the management has not faulted in the
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same and it is free from all kind of errors.
 Electronic Data Interface- It is
development of systems that are free
fast and transparent and that can be
used to place the order through use of
software rather than manually conveying
the same. It will help in making the entire
process of placing the order easy and
comfortable and free from all kind of
errors. It would also help the auditors at
the time of checking the records and
seeing whether there has been proper
maintenance and in case there is any
malfunctioning in the records the same
can be easily identified by the such
electronic systems (Kusolpalalert, 2018).
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References
Abbott, M., & Kantor, A. (2017). Fair Value Measurement and Mandated Accounting Changes: The Case
of the Victorian Rail Track Corporation. Australian accounting Review.
Alexander, F. (2016). The Changing Face of Accountability. The Journal of Higher Education, 71(4), 411-
431.
Chariri, A. (2017). FINANCIAL REPORTING PRACTICE AS A RITUAL: UNDERSTANDING ACCOUNTING
WITHIN INSTITUTIONAL FRAMEWORK. Journal of Economics, Business and Accountancy, 14(1).
Chron. (2017). five-common-features-internal-control-system-business. Retrieved december 07, 2017,
from http://smallbusiness.chron.com/five-common-features-internal-control-system-business-
430.html
Dichev, I. (2017). On the conceptual foundations of financial reporting. Accounting and Business
Research, 47(6), 617-632.
Kusolpalalert, A. (2018). The relationships of financial assets in financial markets during recovery period
and financial crisis. AU Journal of Management, 11(1).
Maynard, J. (2017). Financial accounting reporting and analysis (second ed.). United Kingdom: Oxford
University Press.
Yadao, J. (2018). Forensic accountants and big data.
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