Industrial Services Company provides maintenance services to factories in and around West Bend, Wisconsin. The company, which buys a large amount of cleaning supplies, consistently has been over budget in its expenditures for these items. In the past, supplies were left out in the open in the warehouse to he taken each evening as needed by the onsite supervisors. A clerk in the accounting department periodically ordered additional supplies from a longtime supplier. No records were maintained other than to record purchases. Once a year, an inventory of supplies was made for the preparation of the financial statements.

To solve the budgetary problem, management decides to implement a new system for purchasing and controlling supplies. The following actions take place:

1. Management places a supplies clerk in charge of a secured storeroom for cleaning supplies.

2. Supervisors use a purchase requisition to request supplies for the jobs they oversee.

3. Each ob receives a predetermined amount of supplies based on a study of each job’s needs.

4. In the storeroom, the supplies clerk notes the Levels of supplies and completes the purchase requisition when new supplies are needed.

5. The purchase requisition goes to the purchasing clerk, a new position. The purchasing clerk is solely responsible for authorizing purchases and preparing the purchase orders.

6. Supplier prices are monitored constantly by the purchasing clerk to ensure that the lowest prince is obtained.

7. When supplies arc received, the supplies clerk checks them in and prepares a receiving report. The supplies clerk sends the receiving report to accounting, where each payment to a supplier is documented by the purchase requisition, the purchase order, and the receiving report.

8. The accounting department also maintains a record of supplies inventory, supplies requisitioned by supervisors, and supplies received.

9. Once each month, the warehouse manager takes a physical inventor of cleaning supplies in the storeroom and compares it against the supplies inventory records that the accounting department maintains.

Required

1. Indicate which of the following control activities applies to each of the improvements in the internal control system (more than one may apply):

a. Authorization

b. Recording transactions

c. Documents and records

d. Physical controls

e. Periodic independent verification

f. Separation of duties

g. Sound personnel practices

2. Explain why each new control activity is an improvement over the activities of the old system.