From: You, Senior Associate

Date: April $10,20$X$6,$ at $08$:$32$:$57$

Re: Assessment of P$.$O$.25419$

As you requested, I traced purchase order $25419$ through the purchases$-$payables cycle. Penguin$$s JIT $($Just$-$in$-$Time$)$ inventory management system uses predetermined reorder levels as a basis for automatically generating purchase requisitions. I have listed matters that may require further attention to determine whether this matter is an isolated incident or systemic issues exist. I discovered no significant deficiencies in the segregation of duties.

On the date of the purchase order, I reviewed the daily inventory report. No evidence exists that the JIT system is not working properly.

The purchase order and the invoice are inconsistent. Penguin$$s receipt of $45$ Macaroni Wrenches, when it ordered $50,$ is evidence of a system failure.

Because of pricing differences, internal control in the payables cycle is ineffective.

Internal control over check payment should be investigated further. Penguin paid for $50$ Macaroni Wrenches, but it received $45.$

Finally, I reviewed the payment of the invoice. Penguin chooses not to use an accounts payable system. It pays all invoices immediately upon receipt. This accounting method is acceptable. But at year end, Penguin needs to capture all unpaid invoices and make an adjusting entry for accounts payable.