QUESTION $4(20$ Marks$)$

Just Kidding $($Pty$)$ Ltd is situated in East London. The company manufactures outdoor play equipment for children, for

example swings, jungle gyms, motorized go$-$carts, etc. Somewhat concerned about the internal controls at the company, the

newly appointed financial manager, Alonso Rossi, has requested you to evaluate the internal controls in the acquisitions

and payments cycle. By enquiry of employees in the cycle, an inspection of relevant documentation and observation of the

activities in the cycle, you have established the following:

$1.$ The company manufactures its products according to production schedules compiled by the factory manager. At least

$15$ working days prior to a production run being scheduled to commence, the factory manager gives a copy of the

production schedule and a list of raw materials and parts, for example paint, tubing, motors, to Shamus Rennie or

Lukas Radebbe, the administration clerks in the cycle. These documents are sequentially numbered and signed by the

factory manager.

$2.$ Using the list of raw materials and parts, the administration clerks write out two$-$part $($one white, one pink$)$ sequentially

numbered purchase orders for the items required. Having decided on the supplier with whom they wish to place the

order $($the decision is based on personal preference$),$ they mail the original $($white$)$ copy of the order to the supplier and

retain the second $($pink$)$ copy in a pending $($temporary$)$ file.

$3.$ In addition to purchasing raw materials and parts per the production schedules, the administration clerks regularly

purchase parts and raw materials when suppliers offer special$/$ promotional deals. A two$-$part purchase order is also

made out for these purchases.

$4.$ Just Kidding $($Pty$)$ Ltd has a large physically secure warehouse in which raw materials and parts and finished goods are

separately stored. Clint Castro, the warehouse supervisor, and his team of three warehouse clerks are responsible for

the custody of all inventory. Just Kidding $($Pty$)$ Ltd has a secure receiving bay adjoining the warehouse.

$5.$ Shamus Rennie and Lukas Radebbe are located in an office next to the receiving bay so that they can receive the

goods that have been ordered. When a supplier$$s truck arrives to make a delivery, either of the two will extract the

second $($pink$)$ copy of the purchase order from the pending file. As the goods are offloaded by the supplier into the

receiving area, whoever is receiving the goods will tick off each item on the pink purchase order and sign the supplier$$s

delivery note. At a later stage, either Shamus Rennie or Lukas Radebbe compares the pink purchase order to the

supplier$$s delivery note to identify any items which have not been correctly delivered $($for example over or under

deliveries$).$ The details of under$-$delivered items are entered onto a new purchase order which is sent to the supplier in

the normal manner.

$6.$ The original pink purchase order is placed on Clint Castro$$s $($the warehouse supervisor$)$ desk so that he can enter the

details of the goods received into the inventory records he maintains. The pink purchase order is then sent to the

accounting department. At the end of the day the warehouse clerks move the goods from the receiving bay into the

warehouse.

$7.$ To streamline the purchase$-$order process, senior management at Just Kidding $($Pty$)$ Ltd decided a few months ago to

give all the employees who provide input to the purchase$-$order process access to the inventory and creditors$$ master

data file. This has resulted in saving a significant amount of time as everyone can continue with their own

responsibilities.

Required:

$4\mathrm{.}1$ Identify the weaknesses in the acquisition cycle of Just Kidding $($Pty$)$ Ltd based on the information given

above.

$(10$ marks$)$

$4\mathrm{.}2$ For each weakness you identify also recommend a control that management could implement to lower

the risk caused by the weakness in internal control to an acceptable level.

$(10$ marks$)$

Use the following format when structuring your answer:

Weakness Recommended Control

Weakness $1$ Recommended Control $1$

Weakness $2$ Recommended Control $2$