Question

Carefully study the scenario below and highlight all internal control strengths and weaknesses.  Discuss how all internal control weaknesses can be addressed.

Sam Simpson is the accountant of a medium size company.  Every weekday, his first task is to check whether any suppliers have transmitted their invoice electrically to him.  If there is an invoice, Sam then checks for a corresponding purchase order.  If he locates the purchase order, he then contacts the receiving department and checks whether the goods have arrived.  If the goods have arrived, Sam then prepares a cheque and forwards to the supplier.

If Sam cannot locate the purchase order, he places the invoice in the ‘pending invoice’ tray until he receives a reminder notice from the supplier.  He then checks whether he had received the purchase a

In the unlikely case that Sam cannot locate the purchase order after receiving the reminder notice from the supplier, he calls the purchasing department and requests another copy of the purchase order.

Answer 1

The internal control strenths are as follows:

- No payment is released without validating it with a purchase order.

- No payment is released till a confirmation is received from the receiving department that the goods have actually been delivered.

The internal control weaknesses are as follows:

- If the purchase order is not located, the payment of the bills is delayed.

- He merely contacts the receiving department and takes an oral confirmation of delivery of goods.

The internal control weaknesses can be addressed as mentioned below:

- Sam can tell the suppliers to attach the purchase order to the invoice.

- Sam should request the receving department to give a copy of the delivery challan for appropriate documentation.