The Jameson Company produces a variety of chemical products for use by plastics manufacturers. The plant operates on two shifts, five days per week, with maintenance work performed on the third shift and on Saturdays as required. An audit conducted by the staff of the new corporate internal audit department has recently been completed, and the comments on inventory control were not favorable. Audit comments were particularly directed to the control of raw material ingredients and maintenance materials. Raw material ingredients are received at the back of the plant, signed for by one of the employees of the batching department, and stored near the location of the initial batching process. Receiving tallies are given to the supervisor during the day, and he forwards the tallies to the inventory control department at the end of the day. The inventory control department calculates ingredient use using weekly reports of actual production and standard formulas. Physical inventories are taken quarterly. Purchases requisitions are prepared by the inventory control department and rush orders are frequent. In spite of the need for rush orders, the production superintendent regularly gets memos from the controller stating that there must be excessive inventory because the ingredient inventory dollar value is too high. Maintenance parts and supplies are received and stored in a storeroom. There is a storeroom clerk on each of the operating shifts. Storeroom requisitions are to be filled out for everything taken from the storeroom; however, this practice is not always followed. The storeroom is not locked when the clerk is out because of the need to obtain parts quickly. The storeroom is also open during the third shift for the maintenance crews to get parts as needed. Purchase requisitions are prepared by the storeroom clerk, and physical inventory is taken on a cycle count basis. Rush orders are frequent.

Required:

a. identify the weaknesses in Jameson Company’s internal control procedures used for (1) ingredients inventory and (2) maintenance material and supplies inventory.

b. recommend improvements that should be instituted for each of these areas.

Answer rating: 100% (QA)

a Identified Weaknesses Deficiencies in the Design of Controls Inadequate design of internal control over the preparation of the financial statements being audited Inadequate design of internal contro... View the full answer