The CFO indicated that the store manager generally completes and signs a requisition form, which is sent to the purchasing department. The purchasing officer compiles the requisitions into purchase orders based on the individual vendors. The purchase orders (POs) are then sent to an approved vendor, based on the approved vendors list. The vendors list is generally approved by the chief executive officer, CFO or the chief operating officer. Vendors are approved based on the best prices, quality and their ability to deliver goods on time with the less lead time. Each vendor agrees to meet the demands of the entity and failure to do so, will require the vendors to reimburse the company, should the company is required to source goods from an alternate supplier at a more expensive cost. Four copies of the purchase order is prepared by the purchasing officer, which are approved by the purchasing manager. The original PO (copy 1) is sent to the vendor. Copy 2 is sent to the accounts payable supervisor who files. Copy 3 is then sent to the receptionist at the receiving department to be filed and the final copy (copy 4) is filed in the purchasing department by the purchasing officer in the open purchase order file.

On the receipt of the purchase order from the company, the supplier reviews the purchase order and deliver goods within five business day. The goods are sent to the receiving department. The related invoices are then sent to the accounts payable supervisor at the accounts payable department. On the receipt of the goods the receptionist then reconciles the goods received with the quantity and description on the purchase order along with the price and prepares a receiving report. Any discrepancies identified will be noted on the receiving report and where necessary, the goods are returned to the supplier immediately. The receiving report is then prepared in triplicates. Copy 1 of the receiving report is then sent to the accounts payable supervisor, the second copy is then sent to the purchasing department and the final copy is dispatched to the storekeeper to update the inventory subsidiary ledger. The purchasing officer on receiving the receiving report, review and reconciles with the filed purchase order, then files the receiving report in the purchasing department. The receptionist prepares a goods transfer note, which is then sent along with the goods to the warehouse to be safeguarded. On the receipt of the goods, the storekeeper reconciles the receiving report with the goods transfer note and updates the inventory subsidiary ledger, prepares an inventory account summary, which is sent to the general ledger department.

Accounts Payable Department

The accounts payable supervisor on receiving the copy of the purchase order, receiving report and vendors invoice, enters the invoices in the suppliers account within the accounts payable subsidiary ledger, prepares a payment voucher reconciles all three documents immediately and files the payment voucher in the pending payment file to be paid within five business days. At the end of the fourth day, the AP supervisor, prepares a cheque, which is affixed to the payment voucher for approval. The payment vouchers are then sent to the general managers office who reviews and if approved, signs cheques for payment. All cheques are required to be signed by the general manager only. The cheques are then returned to the AP supervisor who places the cheques in a vault pending distribution to suppliers. The AP supervisor is the sole custodian of the vault which contains all signed cheques and unsigned cheque leaves. The AP supervisor then files the suppliers invoice, receiving report and purchase orders on the individual supplier files in alphabetical order. The AP supervisor then prepares a journal voucher, which is sent to the general ledger department immediately after updating the suppliers account in the AP subsidiary ledger.

At a later date, the cheque is sent to the supplier. After dispatching the cheque, the AP supervisor debits the suppliers account in the accounts payable subsidiary and credit the companys chequing account. The AP supervisor then prepares an account summary and a journal voucher, which are sent to the general ledger department for reconciliation and posting the GL.

General Ledger Department

The general ledger department is supervised by an accounting manager. The manager supervises a chief accountant, two general accountants and three junior accountants. On the receipts of the journal voucher from the accounts payable department and the inventory account summary from stores, the chief accountant reconciles, then debits the relevant inventory account and credit accounts payable control account in the general ledger. The chief accountant also reconciles the inventory subsidiary ledger with the general ledger after which journal voucher (JV) is placed in the journal voucher file.

The chief accountant also receives a journal voucher and an account summary from the AP supervisor depicting the settlement of the supplier balance in the subsidiary ledger. On the receipt of these documents, the chief accountant reconciles and updates the general ledger, after, which the JV is then filed within the general ledger department.

After the conclusion of the CFOs review, it was clearly acknowledged that posting to the subsidiary ledgers by the storekeeper and the accounts payable supervisor do not automatically update the general ledger. Consequently, he has engaged the services of a reputable service provider to provide a multi-module accounting software that will eliminate the disparate functions and automatically post to the general ledger in real time.

The CFO has also sought the services of external consultants who are tasked with the responsibilities of identifying the current weaknesses in the system and reasons for the deficiencies. In addition, the consultants are ask to draft a flow chart of the current system to assist persons in obtain a better understanding of the entitys environment, which also includes its internal control processes. The CFO is also cognisant of the magnitude of all that is required to fix the current the system, however, while it is deemed expensive to address, the company has budgeted a maximum of $150 million only, but Mr. James is steadfast that the deficiencies must be highlighted and addressed immediately, if not they may result into material weaknesses, which could later cause the company billions of dollars.

Required:

2. Outline any four weaknesses which exist in the current system and indicate why? [10 marks ].