Report: Internal Control Weakness in Platinum's Special Order Purchase

This report evaluates the internal control weaknesses within Platinum Manufacturing's special order purchase process. The analysis reveals significant vulnerabilities stemming from the company's organizational structure, reliance on verbal communication, and lack of structured record-keeping. These weaknesses heighten the risk of fraud and hinder the efficiency of auditing processes. The report highlights the impact of these deficiencies on the company's financial assets and overall operational effectiveness. To mitigate these risks, the report recommends the formation of a cross-departmental monitoring team, the adoption of electronic forms to improve documentation, and the establishment of a clear communication channel between departments to streamline the purchase process. Furthermore, the report addresses the compatibility of these recommendations with the potential integration of disruptive technologies, ensuring their feasibility and long-term applicability.

Running head: INTERNAL CONTROL WEAKNESS OF PLATINUM’S SPECIAL ORDER
PURCHASE PROCESS
INTERNAL CONTROL WEAKNESS OF PLATINUM’S SPECIAL ORDER PURCHASE
PROCESS
Name of the Student
Name of the University
Author Note

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INTERNAL CONTROL WEAKNESS OF PLATINUM’S SPECIAL ORDER PURCHASE
PROCESS
Executive Summary:
The report has taken consideration of the Platinum Manufacturing group and it has been
identified by evaluating its special order purchase process that the organisation is suffering
from internal control weakness. The identified weaknesses are developed as a result of its
improper structuring of the company’s department and verbal communication means. The
identified weaknesses lead to increase in the chance of fraud within the company and will
have major impact if the risks are not mitigated as early as possible. The lack of paperwork
can also create problems for the auditing team and will ultimately result in affecting their
other works. The recommendations to mitigate the identified problem is formulating of a
team consisting of different skills that can assist in controlling and monitoring of frauds in the
purchase process. Another recommendation suggests adopting of the electronic forms instead
of sticking to the paperwork which will assist in maintaining the accurate and structured
paperwork. The final recommendation suggests that the organisation should develop a
communicative link between different department of the company that will ensure proper
communication and hence, reduce the effort involved in verification of the purchased and
ordered item again and again. Finally, the paper has justified the compatibility of the
recommendations with the disruptive technologies if the company plans to adopt one.

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PROCESS
Content Table
Purchase procedure....................................................................................................................3
Level 0 Data Flow Diagram.......................................................................................................3
Identifying Internal Control Weakness:.....................................................................................4
Impact of the Internal control weakness over the company...................................................5
Recommendations..................................................................................................................6
Compatibility with reengineered It management of the company.........................................7
Bibliography:..............................................................................................................................8

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Purchase procedure
The expenditure process of the are carried out in multiple steps. The first step
involves the head of the department sending a purchase requisition to the purchasing team.
Followed by the purchase team verifying the authority and selecting the most appropriate
vendor whom they place the order by requesting a price quotation. In the meantime, the
purchase team also develops a pre-numbered purchase order and sends it to the account
payable, receiving and the head as well. In the next step they fill one copy to the open
purchase file order which latter on confirmation of receiving from the receiving department is
moved to the filled file. They even review the open purchase order file once a month to
follow the order. The next step is undertaken by the receiving department which verifies the
receiving order and if the quality and quantity is met then the purchase order is stamped with
date and forwarded to the accounts payable. If the quality and quantity of the deliverables is
not met, then it is marked with red ink. The account payable in the next step, compares the
purchase order with the vendor’s invoice and when both matches then it a cheque is signed
and forwarded to the treasurer for signature. In the final step the treasurer signs the cheque
and sends it to the vendor concluding the process.
Level 0 Data Flow Diagram

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INTERNAL CONTROL WEAKNESS OF PLATINUM’S SPECIAL ORDER PURCHASE
PROCESS
Figure: Level 0 Data Flow Diagram of Special Order Purchase Process
(Source: Author using smartdraw)
Identifying Internal Control Weakness:
The sharing of information within the company is mostly based on the verbal process
which enhances the chances of fraud due to lack of paperwork. Maintaining the record is also

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PROCESS
not appropriate within the company. The company lacks in proper structuring of the purchase
process that is the process moves inadequately within the company’s department. The above
points refer the identified internal control weakness of the company.
Impact of the Internal control weakness over the company
The company is suffering from significant internal control weakness that can have
crucial impact. The first and foremost impact that the company faces is over its financial
assets. The company follows verbal sharing of information which increases the chance of
frauds as no or very little written proof is available, the stakeholders of the company may
undertake some unethical means and attempt at using the company’s financial assets to fulfil
their personal need and agenda. This will lead to a dishonest environment within the
company which will harm the company in long run. The auditing process of the company will
also face some huge challenges because they will have to put extra effort and ask every
department manually about the information which will take long time and even result in
improper auditing because of the exhaustion that the auditors will face.
The improper structuring of the company also makes the process exhaustive and
lengthy. The process of purchase has to move from department to department and each
department verifies the order which consumes a lot of time and effort. The exhaustion from
the purchase process may reflect on the other works of the company’s department leading to
decrease the standard of the company’s internal process. So, it will be proper to say that if the
company does not take appropriate actions to mitigate the internal control weaknesses than
the company will not withstand its position for long. The chances of closing the company
may also arise if appropriate care is not given to the problem.

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PROCESS
Recommendations
It is recommended that the organisation formulate a monitoring team to monitor the
purchase process. The team must be leaded by one of the senior official and the team should
consist of members from every department to include all the skills necessary for the
monitoring process. The technical team member will measure the quality and quantity of the
received item while the financial expert will validate the price of the purchased product.
Other much needed skills should also be included in the team to ensure its completeness. The
devising of the monitoring team will keep the frauds in check.
Another potential approach that can help in mitigating the identified risk is to adopt
electronic forms. Adopting the considered measure will make all the documents registered
within the systems server and can be extracted at the time of need. The auditing team can
collect the data from the system without visiting every department to collect the data. If any
fault is identified in the data, then the auditors can visit the faulty department and collect the
appropriate data. Other significance benefit that adopting electronic forms will offer to the
company is the reduction in the company’s expenditure. The company will save its capital
spend on the stationery that includes notepads, pens, markers and many other items.
The company also needs to restructuring of their purchase process in which they need
to formulate a proper purchase process. To achieve the considered restructuring a
communication channel must be built among all the departments so that they do not have to
verify the same process again and again. Adopting the discussed measures may prove to vital
for the company in mitigating the identified internal control risk and maintain the company’s
success ratio.

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PROCESS
Compatibility with reengineered It management of the company
The readers of the devised report may cite some concern over the compatibility of the
proposed methods over disruptive technologies. Hence, it is informed that the proposed
measures are feasible and can easily be integrated with the new technology that the company
is planning to adopt. The reason behind the compatibility rely on the fact that the proposed
measures includes formulating of a team to monitor and control the company’s purchase
process. As the proposed measure includes human involvement who can easily be trained in
adopting new technologies such as EDI, barcode scanning and others making them
compatible with reengineering of the IT structure of the company. Additionally, the report
has also discussed adoption of the electronic form that is an IT service and can easily cope up
with other IT change and hence, it can be stated that the recommended measures can be
integrated with the restructuring of the organisation.

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PROCESS
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NAVAL POSTGRADUATE SCHOOL MONTEREY CA.