Reference no: EM133016429
Question - Fred Ltd is a major manufacturer of sport equipments. Detailed below is a description of its purchasing and payments system.
a) After receiving an approved purchase requisition form, the purchasing department prepares and issues a purchase order that has five (5) copies. The copies of the purchase order will be documented as follows.
b) The carbon copy 1 is sent to the supplier, carbon copies 2 and 3 are forwarded to the goods receiving department, carbon copy 4 is forwarded to the cash payment department and carbon copy 5 is filed in the purchasing department.
c) When goods are received, the goods receiving department logs in the shipment by stamping "order received" on its two carbon copies of the purchase order, which then forms its receiving record. One carbon copy of the receiving record is filed in the goods receiving department and the other is forwarded to the cash payment department.
d) The cash payment department re-checks and verifies the purchase requisition form, purchase order and receiving record for each supplier invoice and then approves it for payment.
e) The cash payment department prepares disbursement voucher and forwards it along with the supplier's invoice, purchase requisition form, purchase order and receiving record to the chief financial officer.
f) The chief financial officer prepares a cheque for each supplier, signs the cheque and records it in the cash disbursements journal. The cheque is immediately mailed to the supplier. Supporting documentation is returned to cash payment department for filing.
g) At the end of the month, the bookkeeper undertakes a sequence check of all forms and documents. The chief financial officer receives the monthly bank statement, prepares bank reconciliation and investigates any reconciling items.
Required - Identify five (5) internal control weaknesses in Fred Ltd's internal control system concerning the purchases and payments functions. Explain why each is a weakness. Your answer should not be a general discussion of the given scenario.
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