Report on Internal Control Weaknesses in Platinum's Purchase Process

This report analyzes the internal control weaknesses within Platinum's special orders purchase process. The report identifies three primary weaknesses: communication issues due to reliance on verbal exchanges, inequitable distribution of duties, particularly in the treasurer department, and excessive effort expended by various departments due to repetitive verification steps. These weaknesses are associated with potential fraud, auditing challenges, and legal risks. The report recommends adopting an accounting information system to automate processes and mitigate communication problems through electronic documentation, restructuring duties for better distribution, and streamlining verification procedures. A level 0 data flow diagram illustrates the purchase process. The report also assesses the compatibility of these recommendations with the reengineering of Platinum’s IT structure, suggesting that electronic solutions are easily integrated while traditional methods require data conversion.

Running head: INTERNAL CONTROL WEAKNESS OF PLATINUM PURCHASE
PROCESS
INTERNAL CONTROL WEAKNESS OF PLATINUM PURCHASE PROCESS
Name of the Student
Name of the University
Author note

1INTERNAL CONTROL WEAKNESS OF PLATINUM PURCHASE PROCESS
EXECUTIVE SUMMARY
The report had discussed the internal control weakness of Platinum and identified that the
weaknesses are associated with its communication process, inequivalent distribution of duties
and extra effort by the organisation. To avoid the weaknesses, the accounting information
system had been recommended or they can do it by traditional means. In traditional means
adopting of electronic form or enforcing written communication are recommended to
mitigate communicational weakness while restructuring of duties and department for the
other two identified weaknesses. A level 0 data flow diagram has also been attached for better
understanding of the organisations’ purchase process. The impact of the weaknesses has also
been discussed in the report and even measured the compatibility between the recommended
measures and the reengineering of Platinum’s IT structure if they decide to adopt disruptive
technology.

2INTERNAL CONTROL WEAKNESS OF PLATINUM PURCHASE PROCESS
Contents
Purchase Process of Special Orders in Platinum........................................................................3
Level 0 Data Flow Diagram.......................................................................................................4
Table of Identification and Assessment.....................................................................................4
Identification of Internal Control Weakness in Platinum.....................................................5
Impact of Internal Control Weakness....................................................................................5
Recommendation to mitigate the Internal Control Weaknesses............................................5
Measuring the compatibility of recommended measures with reengineering of Platinum’s
IT structure.............................................................................................................................5
Bibliography:..............................................................................................................................9

3INTERNAL CONTROL WEAKNESS OF PLATINUM PURCHASE PROCESS
Purchase Process of Special Orders in Platinum
Platinum manufacturing group has a department based purchase process where
different department plays the prominent role to complete a process. The first role is of the
purchase department which have five buyers who on receiving purchase requisition from the
head justifies the requisition validity within the department. Then, one of the five buyers
takes the initiative and proceeds with the buying process where he/she selects a suitable
vendor for the purchase and demands a price quotation from them while placing a verbal
order. Then the selected buyer forms a pre-numbered purchase order and forward it to
different department along with the head to proceed with the task in hand. The receiving
department on receiving the pre-numbered purchase order and the ordered item from the
vendor starts their role in which they compare the received item and the ordered item. If the
received item is suitable as per the ordered item, then they stamp the purchase order and
forward it to the accounts payable while in the other scenario they mark the purchase order
with red ink. After receiving the stamped purchase order from the receiving department, the
accounts department comes to pay their role where they justify the similarity of the vendor’s
invoice and the purchase order. On verification of the similarity between the purchase order
and the vendor’s invoice, the accounts department formulates a check and sends it to the
treasurer completing its role in the purchase procedure. The next part is played by the
treasures department where the cashier on receiving the checks the amount to be paid which;
if under $10,000 then the machine signs the check and over $10,000 is signed by the machine
as well as the cashier completing the purchase procedure.

4INTERNAL CONTROL WEAKNESS OF PLATINUM PURCHASE PROCESS
Level 0 Data Flow Diagram
(Figure: Level 0 Data Flow Diagram)
(Source: Created by Author Using MS Visio)
Table of Identification and Assessment
The internal control weaknesses of the Platinum group can be categorised in three
different categories. The first being the non-documented communication followed by
inequivalent distribution of duties and finally, extra effort invested by the organisation.
Adoption of the Accounting information system can mitigate the identified control
weaknesses because the it will automate the process. Automation of process will omit the
documentation issue because as all the conversation will be done through electronic means
so, they can be extracted from the systems memory at any time. Additionally, the automation
will reduce the workload on the departments ultimately leading to an equal work distribution

5INTERNAL CONTROL WEAKNESS OF PLATINUM PURCHASE PROCESS
and omitting the extra effort put in the purchase process which the employees can use in other
productive works. However, adoption of the system can prove to be costly for the
organisation and hence manual tools or techniques to mitigate the identified weakness have
been discussed in the table of identification and assessment. The table below have discussed
the identified weaknesses their impacts, recommendations to mitigate them along with their
compatibility with disruptive tools such as EDI, ERP, barcode and other if Platinum decides
to adopt the tools.
Identification of
Internal Control
Weakness in
Platinum
Impact of Internal
Control Weakness
Recommendation
to mitigate the
Internal Control
Weaknesses
Measuring the
compatibility of
recommended
measures with
reengineering of
Platinum’s IT
structure
Communication
issues: The primary
control weakness of
the purchase process
of the special orders
in Platinum is its
mode of
communication.
Platinum prefers
verbal
communication with
its external
stakeholders and
within the
departments also
which leads to lack
of proper
documentation and
lack of
The identified issue
can cite significant
impact on the
organisation. The
impacts can be
categories in three
categories namely;
fraud, auditing
issues and legal
troubles.
Frauds: The
organisation lacks in
documented process
which gives its
employee the
leverage to conduct
frauds if they wish
too. They can
produce fake
As stated above the
most appropriate
remedial measure
for the discussed
issue is adoption of
accounting
information system.
However,
alternatively the
organisation can also
adopt other
electronic means of
documenting their
communication.
Platinum could
adopt the electronic
forms for
communicational
means which will
Platinum if adopted
the electronic forms
then it can be easily
integrated with
reengineering of the
Platinum’s IT
structure while
traditional methods
can simply be
removed from the
organisation after
reengineer of the IT
structure. However,
updating the
traditional data with
the upgraded IT
tools will demand
some effort because
the written data had

6INTERNAL CONTROL WEAKNESS OF PLATINUM PURCHASE PROCESS
documentation is
one of the most
prominent challenge
for any organisation
because information
are the most vital
factor for an
organisations
sustainability.
quotations or can
even back down
from their words as
the organisation
lacks any solid
documented
evidence of the
communication.
Auditing issues: Due
to lack of
documentation the
organisation may
face trouble in the
auditing process
which in turn will
develop challenges
for the strategy
development of
Platinum’s financial
resources.
Legal trouble:
Platinum’s lack of
proper
documentation may
lay them in legal
trouble because they
cannot prove
evidence of their
purchase and the
claims of tax
avoidance, illegal
import & export or
other similar
charges.
ensure that the
communication is
documented
additionally, e-mails,
and official chatting
tools can also offer
their services to the
organisational
communication.
Another method that
the organisation
could adopt to omit
the organisational
communication issue
is adoption of
traditional means
where all the
conversations both
internally and
externally are done
through paperwork
in form of notice,
memos, quotations
and other. However,
this method will
consume a lot of
organisational
resources and also
can be ignored by
the employees and
hence, more focus
should be given to
enforcement of the
paper
to be converted to
the digital data to
integrate them with
the system.

7INTERNAL CONTROL WEAKNESS OF PLATINUM PURCHASE PROCESS
communication
rather than its
implementation .
Distribution of
duties: The
distribution of duties
in the Platinum are
inequivalent as is
evident from the
treasurer department
where all the checks
are signed by the
cashier who suffers
from extra work
load and also gives
him/her the
opportunity to fraud.
The inequivalent of
duties can cite some
significant impact on
the organisation,
especially, its
employee. The
cashier is shouldered
with the
responsibility to sign
over all the checks
which over
shoulders him/her
with responsibility
which may lead to
exhaustion of the
cashier and
ultimately lead to
decrease in their
productivity.
Additionally, it is
concerning for
Platinum because
over reliability on
the cashier may
provide them with
the leverage to fraud
in the organisation
which will sure
affect the
organisation
The
recommendation for
the discussed
weakness is to
ensure equal
distribution of
duties. To attain the
desired result
organisation should
create three domains
where the lowest
budget domain that
is below $10,000
should be machine
signed, thee second
domain should be
signed by the
machine & cashier
and the highest
domain by machine
& treasurer. It will
reduce the work load
and also restrict the
powers of cashier
that will mitigate the
risk of frauds.
The duties
distribution will also
be compatible with
the reengineering of
the IT structure
because the
proposed
recommendation
considers human
involvement which
can easily be trained
in IT.

8INTERNAL CONTROL WEAKNESS OF PLATINUM PURCHASE PROCESS
adversely.
Extra effort by
departments: The
purchase process
within the depart
undergoes repetitive
process where the
repetition of the
verification is done
over and over which
consumes the
organisational
resources which
could be used to
increase the
productivity of the
organisation.
Another notable
internal control
weakness of the
organisation is extra
effort of the
organisation which
is evident from the
re-verification
process of the
purchase order and
its associates. Its
impact is
challenging for the
organisation because
it increases the
resources of the
organisation. The
time, effort, human
and other stationery
resources could be
better utilised to
increase the
productivity of the
organisation.
The organisation
must restructure its
purchase process to
by formulating a
team that will verify
each aspects from
purchase order to
vendor’s invoice and
the received item to
reduce the effort
invested by different
departments in the
discussed process
which will save the
time, effort and
organisational
resources.
The formulated team
can also be
integrated with the
barcode system,
EDI, ERP and others
because they will
have to collect the
data directly from
the adopted tools
and which will
simplify their
problems and hence
can be considered as
a suitable measure.
TABLE: TABLE OF Identification and Assessment
(Source: Created by Author)

9INTERNAL CONTROL WEAKNESS OF PLATINUM PURCHASE PROCESS
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