What are the most significant internal controls weaknesses (a) and the recommendations (b) for the following scenario?

Many of NE Textiles' old Draper looms have recently been replaced with more modern and efficient weaving machines.  Instead of being junked or scrapped, these surplus looms are sent by the plants to the Supply Support Division where they are stripped of all useable parts.  These parts are reconditioned, stored, and placed on perpetual inventory records as used supply items.  

Manufacturing facilities within NE route all of their purchase orders for Draper loom parts through the Supply Support Division.  This includes orders made out to Draper Company and all other vendors from whom Draper parts can be purchased.  Supply Support reviews its inventory records (and will hold the order for no more than one day) to determine the availability of used parts generated from the loom stripping program.  If parts are available within Tarheel, the purchase order to the vendor is altered and the Supply Support Division ships the available parts automatically to the ordering plant.  The altered purchase order is then sent to the vendor.

This program has resulted in substantial savings to Tarheel.  Also, many of these older parts are in short supply and are, therefore, difficult to obtain within a reasonable delivery time.

 

Sale of Reconditioned Loom Parts

Customer Orders:

The computer generates a shipping document based on a written customer order. The customer may be a NE Textiles plant or another company.  

The shipping document is reviewed in the Supply Room.  If inventory records indicate reconditioned Draper loom parts are available in bins, these parts will be used to fill the order.  If inventory records show no parts available, the Supply Room Clerk copies these part numbers/descriptions on a sheet of paper.

This sheet of paper goes to the Loom Teardown Supervisor.  Crewmembers will go out to looms in the field and strip the needed parts from the looms.

These parts are sent to the Supply Room, along with the piece of paper, for review and to make ready for shipment.

The Shipping Supervisor loads goods onto the truck.  He checks against Notice of Shipment to assure accuracy of loading.

The loaded truck leaves premises.

What are the most significant internal controls weaknesses (a) and the recommendations (b)?

Answer rating: 100% (QA)

a The most significant internal control weaknesses in the scenario are Lack of segregation of duties ... View the full answer