AUDITING CLASSWORK

INSTRUCTIONS: PLEASE EXPLAIN IN YOUR OWN WORDS, EXPAND, GIVE EXAMPLES TO SUPPORT YOUR ARGUMENTS.

Robert, a junior auditor, analyzed the organizational flowchart of a client company and making certain inquiries of the company controller. Robert has concluded that the internal control over the purchasing department, receiving department, accounts payable, and the treasury is weak and has provided the following list of what he refers to as internal control weaknesses. Review his list and for each internal control, weakness indicates whether you agree or disagree that each statement represents a weakness. Provide a short argument to support your agreement and disagreement with each Roberts assessment.

Internal Control weaknesses.

Prepared by Robert.

PURCHASING DEPARTMENT

The department head of the requisitioning department only participates in the selection of the supplier.

Several employees in the purchasing department propose appropriate vendors before purchase orders are prepared.

In the purchasing department, a few approved vendors are already selected based on the vendors past records.

Purchasing department budget is submitted at the end of every year for the operating cycle ended.

The purchasing department head has limited input in the choice of products purchased.

Several of the employees working in both purchasing and receiving departments are very experienced.

The internal audit department meets frequently with the head of purchasing department to select appropriate vendors.

RECEIVING DEPARTMENT

Only a few employees, including the head of the account payable, have access to the goods during the receiving activity.

When goods are received, the count of the quantity of goods received is verified with the vendor, the head of purchasing department, and the delivery truck driver.

All purchases, including purchases of services, require the approval of the head of the audit committee.

The requisitioning department head independently verified the quantity and quality of the goods in stock before any order is placed.

Three employees in the receiving department are allowed to verify the name of the vendor, the identification number, and the amount of the goods received before payment is made to the vendor.

ACCOUNTS PAYABLE

The accounts payable department is headed by someone with a university degree in Marketing.

All employees in the account payable department made a pledge not to contradict the head of the department for the smooth running of operations.

The account payable department collects all payments from customers and immediately makes the appropriate journal entry and remits all funds collected to the treasury department.

TREASURY DEPARTMENT

All supporting documentation is marked paid immediately when available to the treasurer.

All checks above a certain amount must be signed by both the treasurer and the vice president of finance.

The purchasing, receiving and accounts payables functions are not communicating to preserve the segregation of duties.

The treasury department is very careful in issuing checks, therefore no check is issued to vendors unless the vendor calls or writes to demand payment.

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