In 20X1, Giles Ltd purchased over £10 million of office equipment under its ‘special’

ordering system, with individual orders ranging from £5,000 to £30,000. ‘Special’ orders entail low-volume items that have been included in an authorised user’s budget.

Department heads include the types of equipment and estimated costs in their annual budget requests. The budget, which limits the type and value of office equipment a department head can requisition, is approved at the beginning of the year by the board of directors.

Department heads prepare a purchase requisition form for equipment and forward the requisition to the purchasing department. The ‘special’ ordering system of Giles Ltd functions as described below.

• Purchasing: Upon receiving a purchase requisition, one of five buyers verifies that the person requesting the equipment is a department head. The buyer selects the appropriate supplier by searching the various supplier catalogues on file, and then telephones the supplier, requesting a price quotation, and giving the supplier a verbal order. A prenumbered purchase order is then processed, with the original being sent to the supplier, a copy to the department head, a copy to receiving, a copy to accounts payable, anda copy filed in the open requisition file. When the buyer is orally informed by the receiving department that the item has been received, the buyer transfers the purchase order from the unfilled file to the filled file. Once a month, the buyer reviews the unfilled file to follow up and expedite open orders.

• Receiving: The receiving department receives a copy of the purchase order. When equipment is received, the receiving clerk stamps the purchase order with the date received and, if applicable, writes in red pen on the purchase order any differences between quantity on the purchase order and quantity received. The receiving clerk forwards the stamped purchase order and equipment to the head of the requisitioning department and orally notifies the purchasing department.
• Accounts payable: On receipt of a purchase order, the accounts payable clerk files it in the open purchase order file. When a supplier invoice is received, it is matched with the applicable purchase order, and a payable is set up by debiting the equipment account of the department requesting the items. Unpaid invoices are filed by due date and, at the due date, a cheque is prepared. The invoice and purchase order are filed by purchase order number in a paid invoice file, and the cheque is forwarded to the treasurer for signature.
• ‘Treasurer: Cheques received daily from the accounts payable department are sorted into two groups, those greater than £10,000 and those under £10,000. Cheques for £10,000 and less are machine-signed. The cashier maintains the key and signature plate to the cheque-signing machine and maintains a record of usage of the cheque-signing machine. All cheques over £10,000 are signed by the treasurer or the controller.

Required

Describe the internal control weaknesses relating to purchases and payments of ‘special’
orders of Giles Ltd for the functions carried out by each of the following areas/personnel:

(a) purchasing;

(b) receiving;

(c) accounts payable; and

(e) treasurer.